The Fed will release the FOMC statement at 7:00 pm GMT today, followed by a press conference thirty minutes later. The market expects confirmation that its rate hiking cycle will begin in March. The prospect of tightening is one of the reasons that the market shifted to a risk-off sentiment during January. However, inflation is currently at 7%, a threat to the Fed's price stability mandate. This poses a problem for the Fed regarding just how aggressive it chooses to be with its rate hikes. Moreover, the market will also be listening for clues regarding its balance sheet normalization, given that its bond-buying program will end in March.
The left chart below shows the USDOLLAR daily. It has moved from the bearish area (lower blue and red bands) and is now on the border of positioning itself bullishly (between the upper blue and red bands). The hourly chart on the right shows the trend following indicators have turned bullish (black ellipse). The stochastic is heading towards the upper quintile (blue arrow). If it hits this level and maintains, it will likely signal the presence of underlying bullish momentum. However, we caution that volatility is expected at the time of the statement release and press conference.
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Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.