Week in FX Americas – The Fed Stills Needs to Convince

Friday’s strong US jobs report has the Fed on track for a potential roll back of stimulus as early as this September or sooner for some of those eternal optimists. The market is now moving from theory to real possibility pricing, expressed by a surge in the dollar and a move in interest rates. Investors are now expecting the EUR to remain in the ‘underperformance category’ as the US yield advantage is set to trump the persistently low ECB rate environment. Continued weakness in the commodity market will dampen investor appetite for commodity sensitivity currencies like the loonie and the AUD. In the EM stratosphere, the market will now be expecting a further uptick in money flows out of their region and into the greenback.

The problem for the Fed is that its message about tapering and eventually ending QE in mid of next-year continues to see the market price in a “higher path for the Fed Funds rate.” Despite a plethora of Fed speakers telling the market that they have got their FF predictions wrong, the market seems to be holding on to the idea that the Fed is still focused on ending QE until we have +7% unemployment and they will hike rates at +6.5%. Currently, the Fed is not interested in adding further stimulus despite it missing on its “twin mandates.”

The market inherently knows that the Fed cannot keep its “foot on the gas when it recognizes it has to apply the brakes some way’s away.” It’s a fine balancing act – the Fed has to be forward looking and they know they need to convince the market to think same way. Expect ‘Helicopter’ Ben again to be rather vocal when he delivers his testimony mid month.


* CNY Consumer Price Index
* GBP NIESR Gross Domestic Product Estimate
* CNY New Yuan Loans
* USD Fed Releases Minutes from Jun 18-19 FOMC Meeting
* JPY Bank of Japan Monetary Policy Statement
* JPY Bank of Japan Rate Decision
* AUD Employment Change
* EUR ECB Publishes Monthly Report
* JPY Bank of Japan’s Monthly Economic Report for July
* USD U. of Michigan Confidence


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments.
He has a deep understanding of market fundamentals and the impact of global events on capital markets.
He is respected among professional traders for his skilled analysis and career history as global head
of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean
has played an instrumental role in driving awareness of the forex market as an emerging asset class
for retail investors, as well as providing expert counsel to a number of internal teams on how to best
serve clients and industry stakeholders.
Dean Popplewell