USDOLLAR volatility risk ahead of FOMC statement

  • USDOLLAR
    (${instrument.percentChange}%)

USDOLLAR showed resilience over the last few trading sessions. Yesterday showed a crack. There is a risk of heightened dollar volatility.

The Federal Reserve releases its statement at 7:00pm GMT. Its press conference is 30 minutes later. Today's hike may be the central bank's penultimate move. However, Chair Powell may push back. This could hit risk assets and see a flight to safety.

FXCM's USDOLLAR basket moved from its weak channel between the lower blue and red bands to its neutral zone between the blue bands. This strength was because of defensive positioning ahead of today's release.

Yesterday's moderation in the Employment Cost Index gives further reason to think we are near this cycle's peak. USDOLLAR sold off after the release and charted a gravestone doji i.e., dollar bulls lost control.

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Inflation stickiness will still be a concern, but the median CPI is rolling over. A possibility is that the Fed doesn't want to see conditions get too loose. There is still motivation to talk like a hawk, although data on the ground suggests otherwise. This will be negative for risk assets. However, any communication with dovish connotations will probably send the dollar back into its weak channel.

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Russell Shor

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.

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