Talking Points:
- The Federal Reserve will hike rates 25-bps tomorrow, but given that the event is 100% priced in per Fed funds futures, the US Dollar needs something else to spark a rebound.
- The technical structure for the US Dollar is pointing lower in the near-term amid a strengthening bearish momentum profile.
- Retail trader sentiment[1] towards the US Dollar is now bearish as traders sell rallies in EUR/USD[2] and GBP/USD[3].
See our longer-term forecasts for the US Dollar, Euro[4], British Pound[5] and more with the DailyFX Trading Guides[6]
The US Dollar (via the DXY[7] Index) is trading lower following the daily hammer established yesterday, which hinted at a possible rebound. Alas, with the DXY Index falling back after another test of resistance at the late-August lows, losses are once again taking shape. It's worth noting that the drop in the US Dollar is occuring while the US Treasury 10-year yield moved up past 3.100%, a fresh yearly high.
For US Dollar traders, nothing is more important over the next day than what happens at tomorrow's Federal Reserve policy meeting. It is essentially universally accepted that the FOMC[8] will hike rates by at least 25-bps tomorrow, with some taking the precocious stance that a 50-bps hike will materialize. Fed funds peg the odds of a 25-bps hike tomorrow at 100%, with a 2.1% chance of a 50-bps hike.
There are a few things to consider about current market pricing. At a minimum, a 25-bps rate hike will not help lift the US Dollar; it is already priced in. Because there is a small chance of a
