Forecast for Tomorrow - levels for EUR/USD: floating between 100-day SMA and 200-day SMA for direction

Forum on trading, automated trading systems and testing trading strategies

Press review

Sergey Golubev, 2015.09.11 05:55

USD trading strategy going into next week's FOMC meeting - Morgan Stanley (based on efxnews article)

Morgan Stanley estimated thew probability for Fed hike in September vs December meetings, and it was stated that a 30% chance only of a hike in September, so there is more chance to expect this events in December this year. And in this case, it may be more opportunity for EUR and JPY with related to USD: those pairs may be in bullish condition during the September 17th meeting for example.

Thus, there are 3 basic scenarios concerning Fed hike:

Base-Case: December. "The Fed has entered its pre-meeting silent period, which means there are no speakers on the agenda to move market expectations of the first hike before the September 17th meeting. Comments from the Fed thus far suggest the central bank wants to make the first hike as well flagged as possible and avoid surprising the market. With markets pricing in less than a 30% chance of a hike in September, it therefore is unlikely that the Fed will hike now. Indeed, our US economists have maintained their view for a December hike."

Get It Done: "A hike next Thursday would lead to accelerated EM weakness, in our view. Current account surplus and net foreign asset-supported FX such as EUR and JPY may rally should the Fed hike; these currencies have developed an increasingly tight inverse relationship with the performance of risky assets."

Or Wait: "The Fed delaying action would be in line with current market pricing. In this scenario, USD would likely soften somewhat and the Fed would remain data-dependent in the statement and in the Chair’s press conference. Nonetheless, USD dips still represent buying opportunities as the reason for USD strength is mainly USD-supportive repatriation flows."

Forum on trading, automated trading systems and testing trading strategies

Press review

Sergey Golubev, 2015.09.11 16:35

Any USD downside should stay limited from the current levels - Credit Agricole (based on efxnews article)

• "Risk sentiment remains unstable ahead of this weekend’s data out of China and next week’s FOMC monetary policy announcement."
• "It seems to become a stronger notion that the Fed will consider higher rates next week, irrespective of more muted price developments and intact uncertainty as related to Asia. This is also reflected in Bloomberg consensus expectations, according to which a lift-off is favoured next week. If so, the greenback should remain supported versus for instance the JPY. This is especially true as rate markets price in a probability for the Fed to tighten of only 30%."
• "However, even if the Fed will remain on hold, as forecasted by our economists, central bank Chairwoman Yellen should consider a more hawkish rhetoric during the press conference in order to prepare the market for a lift off in October. This in turn suggests that any USD downside should stay limited from the current levels."
• "All of the above suggests too that EUR/USD upside should prove limited, even if the pair continues to benefit from weak sentiment."