So What’s Next

So what’s next?

Whatever debate there was regarding the March 15 FOMC was indeed settled by Fed Chair Janet Yellen’s remarks to the Executives’ Club of Chicago on Friday. March is on! Equity markets took the comments in stride as investors view the rate hike as a positive reflecting an economy that is strengthening. Forex markets reaction was somewhat guarded as the dollar came off intraday highs with the March rate hike is now completely priced. This price action suggests that further dollar upside is limited near term. We’ve moved from 30 to 80 % probability for a March hike in a mere two weeks, so post-Yellen profit taking was always in the cards. Although I view the March hike as a preemptive strike, I suspect at this stage only an outlier  NFP similar to last May which derailed the Fed’s June 2016 rate hike, would alter the FOMC decision for  March. But the real concern for dollar traders is the trajectory for interest rates in 2017. Dr Yellen did take the sting out her Hawkish delivery, by referencing data dependency. However, if the data suggests that employment and inflation are close  and if President Tump follows through with infrastructure spending and tax cuts, traders will then start thinking about the possibility of the fourth hike in 2017, and this will boost the US dollar outlook significantly

Australian Dollar

Eyes will be on tomorrow’s  RBA cash rate decision, and while  the RBA is unlikely to shift away from its neutral stance, as usual, the markets will be attuned to the Central Banks  views of both domestic and international  markets evolution

In early trading, the Aussie is perched just below 76 on a combination of USD longs profit taking and buoyant risk sentiment after equity markets took Dr Yellen remarks well. So long as the global growth story line remains firmly intact, support for the Aussie dollar should remain robust near-term

Japanese Yen

USDJPY continues to hold, but the topside momentum based on March has slowed considerably. As we enter the Fed blackout period, the dollar will get zero support like it did last week from the hawkish chorus of Fed speakers that were underpinning the Greenback.  Dealers are looking at 114.95 ( FEB High) as the key for further topside momentum, but at his stage, it’s looking like a bridge too far to cross.


The EUR risk profile is changing with higher than expected EU  PMI and  German inflation surging. Rate curve volatility is picking up so the higher rates should keep EUR supported near term even more so as French election risk is abating with Le Pen losing ground in the polls.

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.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes