The 50 vs 25 debate continues to dominate – OCBC

The US dollar (USD) continued to trade on the back foot as markets re-priced in a higher probability of a 50bp cut at the upcoming FOMC, note OCBC French FX Frances Cheung and Christopher Wong.

Easy time climbing on the daily chart

“It remains a close call whether the Fed cuts by 50 or 25 basis points. While the magnitude of Fed tapering may impact USD moves, the Fed’s commentary and dot chart guidance should have a slightly more lasting effect than a first 25 or 50bp cut. The dot chart should provide a reality check on the market’s expectations for the path of rate cuts. At the time of writing, markets still expect a 120bp cut for 2024 (with 3 more Fed meetings).”

“Apart from the rate cut trajectory, global growth momentum matters for the USD. If Fed tapering is not recession-led and this growth outside the US continues to advance (not-hot-not-cold), then it is more likely that the USD can lag behind, while other growth- and rate-sensitive currencies can outperform (ie KRW, MYR, THB).”

“DXY dropped lower again in the open. Elan slight climb on daily chart intact but RSI down. Two-way trades likely in the meantime. Support at 100.50 levels. Clean break highlights 99.60. Resistance at 101.40 (21 DMA), 102.20 (23.6% fibo retracement from 2023 high to 2024 low), 102.86 (50 DMA). Today it’s pretty easy on the data file, with empire production on tap.”