Markets will closely watch whether Fed can provide Average Inflation Targeting Framework
Dollar Index unlikely to wide its wings after the policy outcome.
As we entered into yet another round of FOMC meet where market participants already priced-in for a dovish stance (not eager to raise rates sooner) amid pandemic situation in US. Admittedly, cases are spilling over but the latest economic figures are not as gloomy as thought so. Undoubtedly, Dollar Index is getting weaker from the dovish forward guidance but caution is required as Fed may review its position in coming months. At the same time, other developed central banks are not aligning with the Fed which is the biggest risk for dollar so far.
Apparently today’s meeting will be more focus on the Fed’s new average inflation framework. Markets will be closely watching the parameters for this framework – when Fed will consider to raise rates ( end 2022 or beyond ) or will the rate setters allow inflation to run beyond 2%. Albeit, Fed maintains status-quo in Fed Fund markets but other funding markets are getting strongly hit notably the commercial paper (CP) segment due to lower interest rate. Thus Fed may review such scenarios before sounding extreme dovish.
As far as Dollar is concerned, it remains extremely downhearted but relative growth differences between developed markets pushed the greenback into red for last few months. However, the July Job Opening and Labour Turnover Survey (JOLTS) released last week suggests the labour market is in much better health than the downbeat jobless claims figures imply which we think Dollar downside will be capped soon. For rupee, the broad range in next few weeks will be from 72.40 to 74.55 on spot based on present scenarios of monetary policies across developed and emerging markets as well.
TREND : SIDEWAYS
Time : 16/09/2020
Pivot : 1.1859
Technical View : LONG ABOVE 1.1879
Target : 1.1899, 1.1935, 1.1965
Technical View : SHORT BELOW 1.1839
Target : 1.1819, 1.1803, 1.1783, 1.1742