On Wednesday, 21 Sept, at 6:00 pm GMT, the Fed will announce its hike in the Federal Funds Rate and release its FOMC statement. Thirty minutes later, the Fed Chair will hold the FOMC press conference. We expect a 75 bps increase to 3.25%. However, following the higher than expected CPI, the market has priced in a 20% probability for 100bps.
The current inflation tends to have a broad sticky element to it. This price resilience will likely concern the Fed until it shows disinflation. However, per the preliminary University of Michigan Inflation Expectations survey, consumer expectations moderated to 4.6% (4.8% - previous). Moreover, the pricing elements from last week's Empire State and Philly Fed Manufacturing Indexes indicate temperance. Therefore, 75bps seems to make more sense at this stage.
The USDOLLAR remains supported in this environment. The daily stochastic has just moved above 80. A solid momentum will be present if it holds in this area (green rectangle). The basket trades between the upper blue and red bands in its bullish channel. Moreover, the upper Bollinger has turned up. If the bottom red band follows, the greenback will have an upwards bias (base case scenario).
The stubborn inflation has hurt the Fed's credibility; therefore, aggressive action remains likely. As such, hawkish Fed communication will support our base case scenario.
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.