Investors will be focused on today’s FOMC meeting outcome. In one of the last speeches ahead of the black-out period, Atlanta Fed President Dennis Lockhart on Monday urged a “serious discussion” about raising interest rates at the upcoming FOMC meeting. We anticipate a serious discussion amid a split Committee. Given the lack of consensus, however, we think the compromise outcome will be that the Fed leaves its target rate unchanged for now, but uses the post-meeting statement, and Chair Yellen’s press conference to send a strong signal for an upcoming hike at the end of the year.
There is much more agreement among FOMC members about the fact that the neutral Fed funds target rate is even lower than previously thought. As a result, many members will again cut their estimate for the longer run natural rate; the median dot, however, may stay at an unchanged 3% for now, after having been lowered by 50 bp over the past six months. In addition, the median dot for year-end 2016 will come down by 25 bp , as the Fed will raise rates only once this year (regardless of whether this hike occurs in September or December). A lower 2016 dot and a lower neutral rate inevitably mean that the medium-term rate hike path will also be more shallow. The median dots for year-end 2017 and 2018 will thus be cut as well, presumably both by 50bp, which would bring the Fed in line with our own forecasts.
Fed chair Janet Yellen will likely send a strong signal for an upcoming hike in December. This may cause some bumps on the road to USD correction. However, a December hike is unlikely to provide sustainable support. In our opinion the long-term direction of the USD is downwards.
We stay EUR/USD long in the long-term part of our portfolio. We are looking to buy the EUR/USD at 1.1050 in the speculative part of our portfolio.
Source: GrowthAces.com - Daily Forex Trading Strategies