Intraday Market Thoughts

Dollar Solid Ahead of FOMC

by Adam Button
Dec 12, 2017 22:24

The US dollar climbed ahead of the Wednesday's FOMC decision on signs of rising inflation. The Australian dollar was the top performer on Tuesday while the euro lagged. Japanese machine orders and the RBA's Kent are up before Yellen. A new Premium video has been issued and sent to subscribers on the rationale behind the 2 EURUSD trades and rest of 8 trades ahead of the Fed and ECB decisions, in light of the underlining technical developments shaping the EUR and USDX.

The US PPI report doesn't always foreshadow headline inflation but is often a clue. The November report showed pipeline pressures at the highest since February 2012, up 3.1% y/y compared to 2.9% expected. The US dollar got a lift from the report and continued higher for much of the day.

The USD also benefited from Congressional talk that passing the unified tax was imminent. That presents two-sided risks but early details show a 21% corporate tax rate, which is a touch higher than the 20% in the initial bill. What will matter more is how deductions and R&D are credited.

USD/JPY rose as high as 113.75, which was the best since Nov 14. The pair is slowly approaching the tough zone of resistance in the 114-115 range. It's a zone that's been tested four times in the past year and held.

The day ahead could be a big one on that front. If the FOMC hikes rates (an almost sure bet) and delivers some hawkish hints, along with a stimulative tax package, it could clear the way for a dollar rally into year end. However if the Fed decides to stay coy before Powell takes the reigns and the tax plan disappoints, the dollar could just as easily head in the other direction. Ashraf will post a full Fed preview in English and Arabic in Wednesday's early edition of this section. 

Before then, some Asia-Pacific data could move markets. The RBA's Kent is due up at 0000 GMT. The market is increasingly expecting the RBA to stay on the sidelines for the first half of 2017 or longer. Yesterday's soft Q3 house price data underscored the challenges.

Another report to note is the October Japanese machine orders report. The consensus is for a 2.9% rise after the 8.1% drop in September.

Act Exp Prev GMT
Core Machinery Orders (m/m)
3.1% -8.1% Dec 12 23:50
FOMC Press Conference
Dec 13 19:30

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