USD FED meeting preview: USD outlook and forecast
We have the Fed this week and FOMC has the potential to create major volatility here we will look at what to expect from the meeting and also look at a trade setup which is USD/SEK. This post follows on from our one last week “The big Short Trade and Yields”
We are looking for the USD to firm up on most major currencies but coming into the meeting the market remains generally bearish of the USD and expect a dovish Fed…
“Jerome Powell has suggested that the Federal Reserves position will remain resolutely supportive for growth. But with the reopening getting closer and fiscal stimulus adding momentum to the recovery he will have a tough task convincing markets that inflation risks can be overlooked and rate hikes remain years away.” (INGTHINK)
The Fed To Upgrade Economic Projections
The Fed will update their economic growth projections at the meeting and they are likely to be upgraded. The Fed wanted fiscal stimulus and they have just got it with the $1.9 trillion package passed recently by the Biden administration. The package will help growth ($1,400 stimulus payments have already started to hit some Americans’ bank accounts with the bulk being distributed next week) which is already running ahead of forecasts.
The Feds prior Chair, Janet Yellen is now at the Treasury, and she has projected that the stimulus bill will allow the economy to hit full employment in 2022 and its unlikely the Fed will contradict her. This means that the Fed’s own outlook will show the economy making “substantial progress” towards maximal employment, one of the two criteria for slowing the pace of QE bond buying, before the end of this year.
Dot Forecast Rate Hikes Bought Forward
The Fed’s growth forecast will mean that the “dot” forecast can’t say that the economy will need zero interest rates until 2024. If we look at growth and employment data, the conditions look like we could get rate hikes at the end of 2022. The Fed will still stress there uncertainties ahead and that monetary policy will remain extremely accommodative, and they will probably say that they let the market know well in advance of monetary policy changes. What will they do about bond yields?
The FED Will Probably Not Target Bond Yields
Bond yields have been on the rise and many investors think the Fed will mention yield curve control to keep yields down but we don’t expect this yet – they will simply note they have the tools if needed to control disorderly movements in the market. The market is expecting a dovish Fed but they are unlikely to be as dovish as the market expects. With the USD oversold we expect a rally and see USD/SEK as a good risk to reward buying opportunity.
USD/SEK
One of the strongest currencies against the USD over the last year has been the SEK and we think the dollar will mount a major rally. The majority view has been USD/SEK to fall this year but its actually shown decent strength and we expect more upside. The SEK is a minor part of the DXY but closely mirrors its movements and its a good pair to trade if looking for USD strength.
On the chart below, we view the USD as a buy above resistance at 8.600 for a move up to 8.800 or possibly the 9.000 level. With a stop behind 8.400. If we were to fall back below 8.500 we would look to buy back above the level with a stop behind the up sloping trend line and 20 day MA.
Research provided by LearnCurrencyTradingOnline.com
The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.
Before making any investment decisions, you should know that:
– Key to Markets publishes analysis of any kind solely for information purposes and such analysis should not be construed as investment advice or a solicitation to buy or sell any financial instruments including without limitation CFDs.
– Key to Markets will not be liable for any loss or damage, which may arise, directly or indirectly from use of or reliance on the data provided by Key to Markets.
– Whilst all reasonable efforts are made to ensure that all content sources are reliable and that all information is presented, as far as possible, in a comprehensible, timely, accurate and complete manner, Key to Markets does not guarantee the accuracy or completeness of any information contained in the analysis.
– Past performance is not a guarantee of future results.
