FOMC Up Next

The US Dollar is a touch softer today as traders await the outcome of the September FOMC meeting later. The bank is widely expected to hike rates by a further .25% and so the bigger focus is going to be on the forward guidance issued alongside the decision as well as update economic projections. For USD to rally meaningfully on the back of the meeting today the Fed needs to deliver a hike as well as clear signals that further tightening is likely near-term. Last time around Warsh was seen flip flopping in the presser, stoking uncertainty and criticism over his weak messaging. As such, it’s likely that we see Warsh striking a clearer tone, as he did with his Jackson Hole comments.

Inflation Forecasts & Dot Plots

As well as the verbal messaging in the meeting statement and post-meeting presser, traders will also be looking at the clues given in the economic updates particularly inflation forecasts and dot plot projections. This might be where the USD rally runs into trouble. If the dot plot forecasts in particular fall short of current market forecasts this could see USD failing to lift in response to a rate hike today. The question will be whether Warsh’s guidance is hawkish enough to overcome any disparities in dot plot forecasts or the inflation forecast update. Additionally, the fact that oil prices are rising again, as the Middle East conflict persists, means the inflation forecast might retain a hawkish skew despite the declines this year.

Technical Views

DXY

For now, the index remains back above the 99.15 level but still capped by the big 100 level. If we push higher today, focus will shift to the area around the June/July highs and the 101.91 level. To the downside 97.97 will be the first key support to note.