In FX, All Eyes on the Fed – What’s Important?

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Market Drivers September 20, 2017
Uk Retail Sales Beat
Market Waits for FOMC
Nikkei 0.05% Dax -0.17%
Oil $50/bbl
Gold $1315/oz.

Europe and Asia:
GBP UK Retail Sales 1.0 vs. 0.2%

North America:
USD Existing Homne Sales 10:00
USD FOMC 14:00

UK Retail Sales beat expectations sending cable momentarily above the 1.3600 level but the pair couldn’t sustain the rise as profit taking and some terror jitters pushed back to 1.3550 by mid morning London dealing.

UK Retail sales printed at 1.0% versus 0.2%. Store prices rose across all store types in August with Non-food stores (3.2%) & non-store retailing (3.3%) prices showing their highest y/y growth since Mar 1992. The news puts further onus on BOE to tighten policy before the year-end and cable quickly reacted shooting up to 1.3606 on the aftermath of the release.

But the pair couldn’t hold the gains against the key 1.3600 level and price quickly tumbled, aided in part by reports that the financial district in London was evacuated. The terror alert was quickly dismissed, but cable never regained its mojo staying below the 1.3550 mark for the rest of the London session.

Traders are likely focused on the FOMC rate decision due at 19:00 GMT which is clearly the marquee event this week. Given the fact that this the quarterly presser for the Fed, the market will be keen to see if the Fed reaffirms its commitment to tighter monetary policy and remains on course to hike rates another 25bp in December.

If Ms. Yellen comes out with decisive language with respect to rate hikes, the dollar is likely to respond well with USDJPY clearing the 112.00 barrier. If on the other hand, Ms. Yellen equivocates, stating that Fed remains data dependent than the greenback will correct and cable is sure to test 1.3600 once again.

The market will focus on other tangential issues such as the Balance Sheet tapar, Ms. Yellen’s renomination status, and the dot plot, but it will be rate guidance that will be of greatest import to traders. US 10 year yields have risen nearly 10% in the past week in large assumption that a December rate hike is on. If doubt creeps in the benchmark 10-year bond will drift towards 2.00% once again and will drag the dollar with it.

Boris Schlossberg
Managing Director

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