{"id":144314,"date":"2019-03-24T10:01:01","date_gmt":"2019-03-24T14:01:01","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=144314"},"modified":"2019-03-23T15:45:29","modified_gmt":"2019-03-23T19:45:29","slug":"the-week-ahead-friday-22nd-march-2019-currency-point-usd-will-it-moderate-now","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/03\/the-week-ahead-friday-22nd-march-2019-currency-point-usd-will-it-moderate-now\/","title":{"rendered":"The Week Ahead: Friday 22nd March 2019 \u2013 Currency Point \u2013 USD: will it moderate now?"},"content":{"rendered":"
March 24, 2019<\/div>
\r\n<\/div><\/div>

By Evan Lucas, FPMarkets.com<\/a><\/strong><\/p>\n

\u2018Even more dovish than the market expected\u2019 \u2013 Good summary quote of the FOMC\u2019s March meeting, which in itself is interesting considering the market has been considerably bearish on the outlook of the global growth story over the past 6 months.<\/p>\n

Bring it back to a USD perspective: we have been expecting a moderation in the USD in 2019 after a stellar 2018. Now, in some crosses, this has indeed been the case i.e. GBP. However, DXY (the USD Basket) as be rather resilient to this moderate as the likes of the EUR face headwinds of their own due to domestic and international economics.<\/p>\n

So, has the Fed finally caused the forecasted moderation in the USD on the back of the March meeting?<\/p>\n

In the short term yes, medium term unlikely, here is why:
\n\u2013 Dot Plots: moved to \u2018No Move\u2019 in 2019 with 1 hike in 2020 which would take the Fed funds rate to 2.5% in the next 21 months. No hikes are expected in 2021 meaning sometime in 2022 or beyond another rate rise is needed to reach the median estimate of the neutral rate which remained at 2.75%. The sharp change to the dots explains the fast and sharp decline in the USD and the steepened US yield curve post the press conference. The market actually believes the next movement in the Fed funds rate is actually a cut. All this is a clear a USD moderator.<\/p>\n

\u2013 Balance sheet runoff: As foreshadowed by the Board the balance sheet run-off will conclude come September with a reduction in the current speed starting in May. When all is said and done the Fed\u2019s balance sheet will stand at 17% of US GDP or US$3.7 trillion, significantly higher than originally wished. This will release the pressure building in fixed income and the overall financial \u2018tightness\u2019 that has been felt in lending. Again, one could argue a USD moderate on this point.<\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

However, its Powell\u2019s testimony that points to why the sharp USD declines are unlikely to last over the year.
\n\u2013 He is clearly not concerned about the domestic growth outlook; noting the weak December retail sales read was \u201cinconsistent with a significant amount of other
\ndata.\u201d i.e. wealth effect, employment, wage growth and corporate earnings.<\/p>\n

<\/a><\/p>\n

\u2013 Notes some downside risks to inflation, which the Fed is using as its justification for its back down around its rate hike case. Powell stated that \u201csome indicators of
\nlonger-term inflation expectations remain at the low end of their ranges in recent years,\u201d and followed that up with \u201cfeel that we have [not] convincingly achieved our
\n2% mandate in a symmetrical way.\u201d<\/p>\n

\u2013 His synopsis of all of this is the current policy rate as already \u201cin the range of neutral\u201d, that it was \u201ca great time for us to be patient\u201d and reiterate twice that the
\npolicy rate is \u201cin a good place\u2019.<\/p>\n

The conclusion from all of this is the Fed is more concerned about the impacts of the global growth slowdown on the US economy rather than the domestic economy itself. Europe, China and Japan are slowing, and this would suggest the EUR, JPY and EM currencies are going to slide as traders shed risk and head to stronger currency economies, namely the US.<\/p>\n

Yes, this will irk the President and to some extent the Fed too, but as 2019 drifts on the current declines in the USD are likely to tempter as the crosses see higher economic risks.<\/p>\n

By Evan Lucas, FPMarkets.com<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

By Evan Lucas, FPMarkets.com \u2018Even more dovish than the market expected\u2019 \u2013 Good summary quote of the FOMC\u2019s March meeting, which in itself is interesting considering the market has been considerably bearish on the outlook of the global growth story over the past 6 months. Bring it back to a USD perspective: we have been […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-144314","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/144314","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=144314"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/144314\/revisions"}],"predecessor-version":[{"id":144315,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/144314\/revisions\/144315"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=144314"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=144314"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=144314"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}