All Eyes On The Fed
The US Dollar is trading a little softer ahead of the March FOMC decision later today. However, with the Dollar index sitting just off highs, traders are braced for a USD breakout if the Fed delivers on hawkish signals ahead of the meeting. The market is widely expecting the bank to deliver its first rate-hike since 2018 (pre-pandemic) of .25%. However, given that such a move is well priced in at this point, the majority of the focus is going be on the updated forecasts and guidance issued along with the decision.
Dot Plots & Guidance Key
The keys to determining the hawkishness of the Fed’s future actions this year will be in assessing the latest dot-plot forecasts, and the details given in the post-meeting presser. With the market having significantly upped its projections for rate hikes over the year to come, traders will now be looking to see if the Fed confirms (or even surpasses) these hawkish forecasts. If it does, we can expect USD to attract fresh demand. Alternatively, if the Fed retains caution and undershoots the markets expectations with regard to rate-path projections, this will likely fuel some near-term USD unwinding.
Ukraine In Focus
With regards to the post-meeting presser, traders will be looking to see how the Fed judges the risks around the Ukraine conflict. If the Fed focuses on the upside inflation risks over the risks to growth, this will be deemed a hawkish signal and will see USD supported. However, if the Fed instead focuses on the potential growth impact, and talks about retaining optionality within its policy tools, this will likely be seen as USD negative near term.
Where to Trade The FOMC?
USDCHF
Given CHF sensitivity to higher-yields, a hawkish outcome from today’s FOMC will likely drive USDCHF firmly higher. The pair has been trading in a broad bullish channel and has recently broken out above the .9365 level. On a stronger USD today, look for a break of .9426 targeting .9513 and the channel top, initially. Alternatively, should we correct lower, look for .9302 to hold as support for fresh longs.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.