Fed in Focus

Traders are bracing for the headline event of the week today with the March FOMC on deck later. Over the week ahead of the meeting expectations head been evenly split between a .25% hike and an unchanged decision. However, over the last 24 hours market has swung in favour of expecting a .25% hike from the bank. With a small hike now priced in, the main focus will be on the guidance issued tomorrow with traders keen to get a sense of whether the Fed expects to pause after today’s hike or continue pushing ahead with further hikes. Traders will also be keen to hear how the bank judges the risks around the current banking crisis and the extent to which it is willing and able to offer further support if needed.

Calmer Conditions – Upside Risks For USD?

Conditions have improved this week on the back of the UBS/Credit Suisse deal agreed over the weekend and the steps taken by central banks to offer extra Dollar liquidity lines to regional banks. With bonds coming off and equities stabilising, there is some room for a hawkish surprise from the Fed today. The dot plot will be closely watched by traders looking to get a sense of where the Fed is headed and on the back of recent hawkish Fed commentary (admittedly pre-SVB collapse) this is where we might see some hawkishness which could fuel a fresh bout of USD buying near-term.

Technical Views

DXY

The recent recovery off the channel lows in DXY has seen the index stalling into a test of the 104.95 level. Price has subsequently turned lower again and is now testing below the 103.48 level. While below here, the focus is on a further push lower towards the 101.22 level next, with a break here likely to be firmly bearish. To the topside, bulls need a clean break of 104.95 to open a test of the channel highs thereafter.