The Forex world prepares for the much anticipated Federal Reserve interest rate decision. The market prices in a new rate hike on the U.S. Dollar.
While this is typically bullish for the dollar, you can hardly see that The USDCHF is struggling at weekly lows, EURUSD builds energy to pop above 1.13 and even GBPUSD found some bids on the lows.
Traders look for guidance and in the meantime positioning is tricky.
Summer Trading is Here
Let’s not forget this is June and summer trading is already here. No one takes any chances in keeping positions overnight and setting targets too far.
Look at the EURUSD pair, for example. Not even the ECB (European Central Bank) meeting wasn’t able to make the pair break its range. In the last one month, the pair moved in a 150-200 pips range. Maybe even less than that.
Expect other currency pairs to do the same this summer. However, time ticks and 1.13 looms large on the pair. These are the highs in the U.S. Presidential Election, and probably stops will get triggered on any more higher.
U.S. Dollar Ahead of the Fed
As mentioned earlier, the U.S. Dollar is in a tight spot. While it should enjoy a healthy ride, the market does exactly the opposite.
The fear in the market is that the Fed will deliver a dovish hike. While it would be the third hike in the recent cycle, thus confirming the tightening cycle, the tone used will be key.
With the U.S. equities at historical highs, the Fed will have a difficult mission to hike and to keep stocks running. A dovish hike might be the perfect solution.
Inflation in the United Kingdom
Today we had the pleasure to see the UK’s inflation at four-year highs. Anyone surprised by this should think twice.
With the UK equities at highs and the currency collapsing after Brexit, where would inflation be? The two are the result of inflationary forces.
The problem is that the Bank of England cannot do much about it. Brexit uncertainties and the current account deficit in UK won’t allow for much room to move on rates.
Nevertheless, the Bank of England will be hawkish moving forward. However, look for any hawkishness to be downplayed by flows in other currencies.
The U.S. Dollar is set for an interesting week ahead of the Fed rate hike. Look for the details in the FOMC Statement to give the future dollar move.