US dollar is one of the best performing G10 currency today. US dollar index (USDIDX) is up 0.2% on the day and is trying to climb back above 104.00 mark. Markets today are all about FOMC rate decision, scheduled for 7:00 pm GMT. No change in the level of interest rates is expected. Neither out of around 100 economists surveyed by Bloomberg expects Fed to change rates today, while money markets pricing in less than 2% chance of US central bank delivering a 25 basis point rate hike.
While Fed is not expected to make a move today, USD may experience elevated volatility as a new set of economic projections will be released. Dot-plot from September forecasts suggested Fed funds finishing 2023 in the 5.50-5.75% range, or 25 basis points above current level, as well as finishing 2024 in the 5.00-5.25% range, or 25 basis points below current level. Chance that Fed will hike rates today and match September's projections for 2023 is slim. On the other hand, chance that Fed will leave 2024 forecasts unchanged and still expect just one cut is slim as well. Market reaction is therefore likely to be dependent on how many cuts Fed members see for the next year.
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Create account Try a demo Download mobile app Download mobile appTaking a look at USDIDX chart at D1 interval, we can see that recent declines were halted in the 102.50 area and the index started to recover. However, subsequent recovery move has been halted at the resistance zone, marked with the 38.2% retracement of the downward move launched at the beginning of October 2023. USDIDX has been trading sideways since, with the 38.2% retracement acting as a ceiling and 200-session moving average (purple line) acting as a floor. Should Fed's projections turned out to be 'hawkish' - i.e. by showing just 1 or 2 rate cuts for the next year - USD may catch a bid, with USDIDX making an attempt to break above the upper limit of recent range.
Source: xStation5
