By Orbex

The two-day FOMC meeting concludes today, September 18th. At this time, the policy statement and fresh economic projections will be released around 2 pm ET. This is followed by Chair Powell’s press conference scheduled for 2:30 pm ET.

Reading Between the Lines

It’s unknown what the Chair will decide to show today, and multiple scenarios are in sight. Will it be the less dovish version from the end of July when he announced that it was not the beginning of a significant easing cycle as opposed to a “mid-cycle” adjustment?

‘As Appropriate’ or ‘Mid Cycle’

Will Chairman Powell be more cautious this time and condition everything upon the flow of data and events while committing the Fed to act “as appropriate”? The latter approach was the Chair’s method at a recent moderated panel discussion in Zurich on September 6th when he didn’t mention his previous “mid-cycle” references.

FOMC and the 0.25bps

Things are different since that panel appearance. Additionally, it’s not clear that the omitted reference within a tamer setting than a post-FOMC press conference was fully intended. Powell perhaps thought of leaving such guidance for a discussion at the FOMC meeting rather than prejudging the outcome. At this juncture, market watchers believe that Powell will, and it’s necessary to adopt the “mid-cycle” tagline once again. A quarter-point reduction would be the case here. Markets are expecting it. The consensus is almost entirely on board.

FOMC Aftermath

The market risks to have Powell giving further guidance in the shape of modest additional adjustments. This is a slippery path that has the potential to harm markets and global growth alike. As of early September, markets were estimating about five more rate cuts by the end of 2020. Fed funds futures might see three cuts priced shortly, including today’s forecasted rate reduction.

Technical Takeaway

The DXY remains bid, with recent CFTC data suggesting a lightening of long positions in the market from a positioning perspective this gives scope for another leg higher in the DXY as 97.85 acts as support bulls will be targeting a retest of current cycle highs at 99.35 a close above this level will open an immediate assault on the psychological 100 level, the key to this upside development is the current range pivot 98.65. A failure to regain the pivot on a closing basis opens a retest of support at 98.00 a breakdown below 97.65 would open a move to retest current range support at 97.20.

By Orbex