Powell Holds Back on Timing

The US Dollar has been under heavy selling pressure across the European session so far on Thursday, following last night’s rates meeting. The September FOMC was something of a disappointment for Dollar bulls with the Fed once again refraining from giving a timeline for tapering. Expectations ahead of the meeting had been fairly split given the recent US data dirge which has seen several key indicators undershooting expectations. However, bulls were still broadly expecting the Fed to give a clear timing signal on tapering, following the more hawkish commentary heard in recent weeks. Sadly, this was not be the case.

In a frustratingly vague remark, the meeting statement noted “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” The comment offered little in the way of new information, simply reiterating previous guidance around tapering and was met with disappointment from USD bulls.

Tapering Coming "Soon"

Elaborating on the remarks in the statement, Powell told reporters during the post-meeting conference: “While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.”

Dot Plots Lifted

There were some slightly more hawkish aspects of the meeting, however. The dot plot forecasts revealed that a greater number of Fed policymakers now project the first post-pandemic rate hike to come in 2022. Additionally, commenting on the Fed’s dual focus of employment and inflation, chairman Powell noted that the economy had made “substantial progress”. Specifically, Powell said: “For inflation, we appear to have achieved more than significant progress, substantial further progress. That part of the test is achieved in my view and the view of many others.”

Despite the current USD pull back, it is clear that risks are pointed higher in the near term. The language used at this meeting suggests that the Fed is tantalisingly close to kicking off tapering. With this in mind, expect incoming data to take on greater importance now with any upside surprises likely to be met with surges higher in USD.

Technical Views

DXY

The current test of the 93.40 level has seen plenty of bearish divergence in momentum indicators and, as such, risks forming a double top. If price does correct lower from here, the focus will be on the 92.51 level next which bulls will need to defend to keep the focus on further upside in the near term.