DailyFX Research: Preview for June FOMC Meeting and Outlook for USD-pairs

Commentary, Forex, News
Talking Points:
– DXY Index has held steady past few days, the fairly typical low volatility precursor to a key FOMC policy meeting.
– Look for a ‘dovish hike’ today: Fed raises rates by 25-bps; but cuts forecasts and reduces expectations for future tightening.
– Ahead of the FOMC decision, the retail crowd is net-short AUD/USD, EUR/USD, GBP/USD, and net-long USD/JPY – a mix that points to more US Dollar weakness.
The June FOMC meeting should be more market moving than its May iteration, as today’s meeting is one of the four during that year that sees a new summary of economic projections (SEPs) and a Fed Chair Janet Yellen press conference. As it were, the Fed, like the ECB, BOE, and RBNZ, in an effort to become transparent, has become predictable: they will only make a major policy change (i.e., hike rates) with justification in hand and an opportunity for Chair Yellen to explain to markets why they made their decision.
Given that market pricing is more dovish than what the Fed has previously prescribed for its glide path of rates, an acknowledgement of the economy growing at a slower pace than anticipated (coupled with softening inflation readings) may cause the Fed to cut down their forecasts and reduce their glide path for interest rates. In other words, we’re looking for a ‘dovish hike’ today: the Fed will raise rates by 25-bps; but its forecasts, policy statement, and Yellen press conference will reduce the scope for further policy tightening.

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