All eyes are on the FOMC – OCBC

Focus today on the FOMC (2am SGT) – whether it’s cut by 25 or 50 basis points and of course it remains a close call. The USD rebounded modestly alongside UST yields overnight after retail sales and industrial production came in better than expected. A better print of activity data suggests somewhat that the US economy is still on track for a soft landing. The DXY was last at 100.79, note OCBC FX analysts Frances Cheung and Christopher Wong.

Clean break below 100.50 puts 99.60 in focus

“Given that markets are pricing in a much dovish Fed (70% probability of a 50bp cut), the scenario where the Fed only cuts 25bp may force a nasty USD short. While the magnitude of Fed tapering is highly focused and may impact USD movements in the short term, we felt that the Fed’s comments and dot chart guidance should have a slightly more lasting effect than a first 25 or 50bp cut itself.”

“And beyond this rate cut hype, markets’ focus should shift back to tracking global growth momentum. We emphasized that it is important to consider the market environment when the rate cut cycle begins. If Fed tapering is not recession driven and that growth outside the US continues to do well in a not-hot-not-cold environment, then the USD may lag.”

“Slight bullish momentum on the daily chart is fading, while the RSI’s decline has moderated. Two-way trade intraday with a high chance of seeing choppy price action around the policy decision and press conference. Support at 100.50 levels. Clean break highlights 99.60. Resistance at 101.20 (21 DMA), 102.20 (23.6% fibo retracement from 2023 high to 2024 low), 102.60 (50 DMA).”