USD On Watch

The US Dollar is on watch today as traders brace for the December FOMC meeting this evening. The Fed is widely expected to cut rates by a further .25% though it is unclear how dovish the forward guidance issued at the meeting will be. With the market pricing in an almost 90% chance of a cut, the focus will be firmly on the tone and content of Powell’s message after the cut is delivered.

Forward Guidance

To a large extent, Powell’s message is likely to be centered around a data dependent stance with much of the Fed’s future anticipated rates actions likely to hinge on incoming NFP data next week. If Powell notes concern over the strength of the labour market and points to risks of a furtehr weakening, USD could sell off on the back of the decision tonight with further weakness expected if that delayed NFP data comes in soft.  

Bullish Risks

However, there is a high risk that today’s rate decision results in a firmer Dollar on the back of the meeting. Given that a cut is almost fully priced in, there is room for the guidance to be less dovish-than-forecast. Additionally, if we see any dissenting votes against a cut, this could cast doubt over the prospect of a follow-up cut in Q1. Finally, beyond the meeting if next week’s data comes in above forecasts, this will act as a dampener on near-term rate-cut expectations, leading USD higher through the end of the year.

Technical Views

DXY

For now, the index is battling around the 99.15 support. If price can hold above this level, focus will be on a return to the 100.36 resistance and the prospect of a breakout higher. If we breakdown, however, focus will turn to support at 98.24 next and the retest of the broken bear channel highs with 96.63 the deeper support to note.