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The Fed is up this week! What are markets expecting from the central bank?

More importantly, how long will it affect the dollar’s broader trends?

I’ve listed down a few points that might help you trade the Greenback this week:

FOMC Statement (Jan 27, 7:00 pm GMT)

  • As expected, the Fed made no policy changes in December
  • Governor Powell and his team raised their growth forecasts on vaccine optimism
  • USD initially popped up but soon erased its gains when traders priced in the Fed’s continued bond-buying and dovish policies
  • Market players don’t expect policy changes from the Fed this week
  • The Fed could express optimism over the vaccine rollout and likelihood of more fiscal stimulus
  • To avoid the markets getting ahead of themselves (and pushing long-term govt bond yields higher), Powell will likely cool down talks of any near-term tightening

Advance GDP (Jan 28, 1:30 pm GMT)

  • The first reading of Q4 2020 GDP is expected to reflect the slower growth from tighter COVID-19 restrictions that led to lower employment and consumer activity (Bitcoin buying doesn’t count lol)
  • Quarterly growth is seen at 4.0% from a 33.4% jump in Q3
  • Much lower economic activity would highlight the need for more stimulus and faster vaccine distribution

Overall dollar demand

  • Expectations of stimulus in the U.S. could continue to promote risk-taking and weigh on the dollar this week
  • Disappointing U.S. earnings reports, doubts on the size and schedule of the stimulus bill, global lockdown prospects, and end-of-month profit-taking could push the safe-haven dollar higher against its higher-yielding counterparts

Technical snapshot

  • Stochastic considers the dollar “oversold” against the pound on the daily time frame
  • USD is mostly in neutral zones against its other counterparts
USD Forex Pairs Stochastic from MarketMilk
USD Forex Pairs Stochastic from MarketMilk
  • EMAs show the dollar’s short AND long-term bearish trends against most of its major counterparts
  • We could be seeing retracement or reversal setups on USD/JPY this week
USD Forex Pairs EMAs from MarketMilk
USD Forex Pairs EMAs from MarketMilk
  • The dollar was most volatile against the comdolls and the pound in the last seven days
USD Forex Pairs Volatility from MarketMilk
USD Forex Pairs Volatility from MarketMilk

Missed last week’s price action? Read USD’s price recap for Jan. 18 – 22!