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Will Yellen’s Final Move Depreciate The USD?

Dear Traders,

It’s decision day at the Federal Reserve and what makes this final policy decision of the year a significant meeting is not the anticipated rate hike, but the monetary policy outlook for 2018. While the market is certain of a third 2017 hike, the focus will turn to forecasts for the pacing through 2018. We will therefore keep an eye on the dot-plot in order to shape expectations for next year’s rate hike path. If the Summary of Economic Projections (SEP) projects another three or possibly even four rate hikes ahead, the dollar will further rally. However, it is very unlikely that the Fed surprises the market and accelerates its pace. Hence, there is a risk of disappointment today, which could lead to a sell-off in the dollar. We recommend preparing for heightened volatility during the entire North American trading session, while most price action will take place around the FOMC decision and press conference, as well as the CPI reading that will be due before the rate decision.

For Fed Chair Janet Yellen it will be her final quarterly press conference before she steps down in February. It is therefore unlikely that she will signal any new prospects on the Fed’s guidance.

13:30 USD Consumer Price Index (CPI)

19:00 USD FOMC Rate Decision

19:30 USD Yellen Holds Press Conference

(Time zone UTC)

Yesterday’s price performance in both EUR/USD and GBP/USD was not to our liking as both currency pairs failed to pick a clear direction despite the broad-based strength in the USD. Technically speaking, the picture has not changed.

GBP/USD: The cable refrained from a break below 1.33 and we currently focus on a price range between 1.3450 and 1.3220. Yesterday’s better-than-expected U.K. inflation data failed to lift up the currency but if investors take profit on dollar positions today, we could finally see some corrective movements driving the pair higher before the holiday liquidity drain.  

EUR/USD: The euro remained well above 1.17 and as long as there is no clear break below 1.1680 the euro could head for another test of 1.1790. Below 1.1680 we focus on lower targets at 1.1640 and 1.16.

We wish you good trades for today.

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