• A big week for the dollar
• What if the Fed shocks the market?
• USDCAD breaks important level
It’s a big week for the dollar. And by extension, anything that trades against the dollar.
That means the pound, the euro, commodities such as oil, gold and silver – those are the main ones people will be interested in.
On Wednesday, the Federal Reserve meets to decide on monetary policy (i.e. whether or not to move interest rates).
And if the Fed surprises the market, expect some big moves in these markets. And most other things too!
Bear in mind that most analysts are not expecting the Fed to do anything on Wednesday. The consensus is that they’ll need to see more evidence of a pick-up in inflation.
That leaves the door open for a big shock if they to decide to raise rates – or even use slightly more Hawkish language in their accompanying statement to the markets.
If you’ve been trying to figure it out, it’s worth getting some input from Tom Tragett. He’s the smartest guy I know when it comes to the forex markets – he’s pretty good on most markets to be honest.
And Tom was the guest on the latest episode of our Talking Money podcast where he spoke to Ben Traynor about the big trends in the markets right now.
You should have a listen. As I say, Tom really knows his stuff on the forex markets – and he’s making a big prediction on the pound which he talks to Ben about in the show.
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And if you’re trading the dollar, have a listen to what he says on that, too. Here’s a snippet where Ben asked him about dollar strength…:
“I think the dollar index is the best thing to gauge that. We peaked out twice at 100 on the dollar index. We subsequently fell back to 91. And most recently we’ve been edging back above 97 again.
“My view is that if the dollar index breaks 100 for the third time that will be the time it accelerates to the upside and we move towards perhaps 105-110. Now in terms of the euro, if that move was to play out we’d certainly be looking at a move back towards parity for EURUSD (i.e. 1 dollar = 1 euro), where it’s currently 1.1000. [So that’s a 1,000-pip move Tom’s talking about – Frank.]
“The Fed has ummed and ah-ed about whether to raise rates again having done it in December. They really have sat on the gateposts for six months now. We have an election coming up in November and I wouldn’t expect the Fed to be aggressive ahead of that because it’s a very tight race there.
“Next week we’ve got the Fed due on 27th (i.e. tomorrow). I think it’s possibly their last chance to raise rates this side of the election, in my view. If they are ever going to do it… the dollar hasn’t gone through the roof… and equity markets have lifted – the Dow and S&P are on all-time highs… and those and other risk markets are very well positioned to absorb another quarter-point rise. The closer we get to the election, the less chance there is of them doing anything.”
Tom’s not predicting that the Fed will raise rates just yet. But he’s suggesting it’s not as clear-cut a case for no action as the wider market seems to be assuming right now. (I’ll give you a link to the podcast in a second.)
And if we do get a ‘surprise’ then that has the potential to cause a huge move in the dollar – and in any dollar-related pairs.
We’ll have to wait and see what comes out tomorrow evening at 6pm BST.
In the meantime, what’s clear is that long dollar has been a pretty decent trade to be in lately. In the wake of the Brexit vote, it’s soared some 11% against sterling – bad news for anyone holidaying in the States this year.
But the pair I’ve been most interested in is the US dollar versus the Canadian dollar. Here’s the daily chart:
If you want the fundamental angle on it, the Canadian dollar has been under pressure due to falling oil prices. Against a generally resurgent dollar since May, that’s made the short ‘Loonie’ trade a nice place to be.
On the charts, USDCAD has finally broken above significant resistance that has kept a lid on it since April at the 1.3150-80 area.
If the price can hold above that zone now and that former resistance becomes support, then this break-out could see 1.3300, 1.3400 and 1.3500 (circled) come into play quite quickly.
Given the proximity of the Fed meeting tomorrow, I’m not prepared to take on the risk ahead of that.
I’d rather wait to see what comes out, watch the market reaction and then look for an opportunity to get in at a decent level – if the USDCAD bull case is still intact.
In the meantime, be sure to listen to Ben picking Tom Tragett’s brain on what’s going on in the forex markets right now. It’ll inform you ahead of the Fed meeting tomorrow and give you some great insights on key trends in play right now.
Listen to the podcast here.
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And, you'll also receive a free subscription to Profit Watch - the hugely informative forex newsletter that's an essential read for ANY trader, new or old.
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