I'm making a post strictly for the U.S. Dollar this coming week because it seems we're approaching a possible inflection point for the currency. Technical indicators suggesting the dollar's recent rally is looking a bit hot, combined with a week of important economic data, suggest a selling opportunity for the dollar may be imminent.
A look at movements in the dollar index futures suggest some further strengthening in the currency is seen for the first day of the workweek, with Asian/Pacific trading starting to rev up as I type this (8:10pm Central Time). Since a relative nadir on October 11th, the dollar index has risen by nearly two index points, from 92.83 to 94.75. The biggest day of gains came on October 26th, with a jump of 1.01 index points. Needless to say, we've been in a bit of an uptrend over the last couple of weeks.
From a technical vantage point, the recent dollar rally has flipped the script from what we saw over the summer and earlier this fall, when the dollar was encountering one of its weakest periods in years. Both the pound and euro are starting to look a little too weak against the dollar right now, especially with EUR/USD dipping just barely below 1.16 in early trading to start this workweek.
In terms of economic data, this week is looking to be a pretty significant one for the U.S. Seen among the high-impact data releases this coming week are a FOMC decision on Wednesday, where expectations are for the benchmark federal funds rate to be held steady at a range of 1.00% to 1.25%.
The big question for this meeting is going to be how policymakers view the likelihood of a December rate hike. As shown to the right, market participants view the probability of a rate hike at this week's FOMC meeting as practically nonexistent, but are pricing in a 97.2% chance of a 25 basis point hike in December. In other words, markets are viewing a December rate hike as all but certain, which leaves little room for any big upside dollar moves from this meeting. Instead, any hint of a more dovish shift in FOMC thinking on a December rate hike could hit the dollar and put an end to this recent uptrend.
The Federal Reserve has indicated they are taking into account the behavior of financial markets in their decisions- of course, to what degree is uncertain, but I would be surprised if there was to be any dovish shift. By historical valuations, stocks are indeed expensive, and I personally see the Federal Reserve as willing to turn a blind eye towards soft inflation and hike rates once or twice more to keep a very strong labor market and a frothy stock market in check. This was put on display a bit in the last few months when traders saw Federal Reserve chair Janet Yellen point to a December rate hike as more likely than previously thought.
The fun doesn't stop there, however. The employment report hits the newswires on Friday, 11/3, and everyone will be watching both the unemployment numbers and any hints of wage gains. Similar to last month, job gains numbers (currently forecasted at or over 300,000 jobs) could be volatile as businesses likely bounced back strongly in October after being hit hard in September from two major hurricanes.
Since this could be another volatile report, it wouldn't surprise me to see this week's USD direction be established by the midweek FOMC meeting. As that last sentence implies, though, the potential volatility of the report could also be a scene-setter, but we'll have to wait and see if that actually ends up being the case.
To summarize:
- Watch the 11/1 FOMC report for hints of a more dovish approach to monetary policy- market participants are nearly fully pricing in a December rate hike and USD could become vulnerable in a change of thinking.
- The possibility of another NFP report missing or beating forecasts by a large margin, like last month, is a source of uncertainty and will likely help set the tone for the week's performance of the dollar.
Andrew
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| Source: investing.com |
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| Source: investing.com |
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| Source: tradingeconomics.com |
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| Source: CME Group |
The big question for this meeting is going to be how policymakers view the likelihood of a December rate hike. As shown to the right, market participants view the probability of a rate hike at this week's FOMC meeting as practically nonexistent, but are pricing in a 97.2% chance of a 25 basis point hike in December. In other words, markets are viewing a December rate hike as all but certain, which leaves little room for any big upside dollar moves from this meeting. Instead, any hint of a more dovish shift in FOMC thinking on a December rate hike could hit the dollar and put an end to this recent uptrend.
The Federal Reserve has indicated they are taking into account the behavior of financial markets in their decisions- of course, to what degree is uncertain, but I would be surprised if there was to be any dovish shift. By historical valuations, stocks are indeed expensive, and I personally see the Federal Reserve as willing to turn a blind eye towards soft inflation and hike rates once or twice more to keep a very strong labor market and a frothy stock market in check. This was put on display a bit in the last few months when traders saw Federal Reserve chair Janet Yellen point to a December rate hike as more likely than previously thought.
The fun doesn't stop there, however. The employment report hits the newswires on Friday, 11/3, and everyone will be watching both the unemployment numbers and any hints of wage gains. Similar to last month, job gains numbers (currently forecasted at or over 300,000 jobs) could be volatile as businesses likely bounced back strongly in October after being hit hard in September from two major hurricanes.
Since this could be another volatile report, it wouldn't surprise me to see this week's USD direction be established by the midweek FOMC meeting. As that last sentence implies, though, the potential volatility of the report could also be a scene-setter, but we'll have to wait and see if that actually ends up being the case.
To summarize:
- Watch the 11/1 FOMC report for hints of a more dovish approach to monetary policy- market participants are nearly fully pricing in a December rate hike and USD could become vulnerable in a change of thinking.
- The possibility of another NFP report missing or beating forecasts by a large margin, like last month, is a source of uncertainty and will likely help set the tone for the week's performance of the dollar.
Andrew
