U.S. dollar weakens after dovish comments from Fed’s Dudley
Talking Points
– The US Dollar put in a significant move of weakness after dovish comments from Mr. William Dudley of the New York Fed were construed to mean lower probabilities of deeper rate hikes in 2016.
– After these comments, markets priced out all rate hikes for 2016.
– There may be another driver for the Fed to kick up rates, and this may be one of the reasons that we’re so deep in this conundrum in the first place. The US Dollar is still within a bullish pennant formation, and should support develop over the next couple of days, this can be an attractive area to begin getting long the US Dollar.
– Potential for volatility for the remainder of this week is extremely elevated. Make sure your risk management has been addressed, and if you’re looking for ways to generate trade ideas based on crowd positioning and sentiment, check out our Real-Time SSI. It’s free.
The largest growing divide in markets just grew a little bit more, and that’s the divergence between the Federal Reserve and the market’s expectations for rate hikes in 2016. The most recent batch of projections were provided in the dot plot matrix at the December Fed meeting, when the bank hiked rates for the first time in 9 years. In those projections was the expectation of the Federal Reserve to embark on a full four rate hikes in 2016. This was met with wide skepticism as we’d just spent the entire year of 2015 bantering about ‘should they, shouldn’t they,’ and when the bank was finally able to ‘lift-off,’ they were trying to do so while carrying an un-liftable caboose of telling markets they were going to hike four times in the next year. This is why we’d classified rates as being the biggest risk moving into 2016; as that had appeared to be the primary pressure point that had further exposed weaknesses in Asia and Commodities, the other two pressing themes as we came into 2016.
