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The Fed will be making its last monetary policy statement this year! Think you’re ready to trade the event?

FOMC statement (Dec 19, 7:00 pm GMT)

The Fed’s last monetary policy decision promises to be an interesting one as members try to balance optimism over the economy and cautiousness against another aggressive rate hike schedule in 2019.

Investors widely expect Governor Powell and his team to raise their interest rates by another 25 basis points to the 2.25% – 2.50% range in December. However, all eyes will be on the Fed’s plans for the near future.

Specifically, Fed members are expected to remove their forward guidance and focus instead on their dependence on data and its risk management strategies.

There might also be fewer rate hikes reflected on the Fed’s dot plot in 2019. Word around is that the Fed could dial it back from the three that we saw in September down to two.

Then, it will be up to Powell to play the balancing game. On one hand, he will want to repeat that the current interest rates are close to their “normalization” levels, which means that soon there won’t be a reason to raise rates.

On the other hand, the Fed head honcho will want to reassure market players that a less aggressive rate hike schedule doesn’t mean that the central bank is seeing bearish trends in the economy.

Analysts believe that Powell will most likely achieve this balance by emphasizing the different approaches (read: data dependence) that the central bank will use in the year ahead.

Will the government shut down this week?

If you’ve just tuned in, then you should know that the Donald is asking lawmakers for $5 billion to fund his promise of a border wall.

Problem is, the POTUS doesn’t have enough support from the House or the Senate to get it and has shared that he would be “proud” to close the government if he doesn’t get his funding.

Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi have offered $1.6 billion to fund border security and upgrades of the existing fencing. Schumer noted, however, that:

If policymakers don’t agree to a spending bill by THIS Friday (December 21), then we might see a partial government shutdown starting Saturday when about one-third of the federal government’s civilian employees would not be paid.

The House already has passed legislation to cover about three-quarters of federal government spending. Some of the government’s biggest spending programs, like Social Security, Medicare and Medicaid, do not require annual appropriations and would not be affected by a shutdown.

Other market catalysts

As you can see below, traders still look to the dollar for their risk sentiment trades.

This week, headlines related to Brexit, the U.S.-China trade war, BOE and BOJ’s policy decisions, and Uncle Sam’s other top-tier reports could affect the dollar’s price action.

Oh, and don’t forget that it’s “quadruple witching” this week! The simultaneous expiration of stock index futures, stock index options, stock options and single stock futures could cause extra volatility for the dollar, so y’all make sure you watch your positions closely in the next few days!

Last Week’s Price Review

The Greenback will soon be boasting its fifth consecutive week of net wins since the Greenback is currently the one currency to rule them all (as of 6:00 pm GMT).

Despite being the top-performing currency of the week, the Greenback’s price action wasn’t really very uniform.

With that said, the Greenback appears to have gained mainly at the expense of the euro and the pound since the Greenback happily climbed higher whenever the euro and the pound were under bearish pressure.

The Greenback also appears to have benefited from safe-haven flows when risk aversion returned on Thursday and stuck around on Friday.

Overlay of USD Pairs: 1-Hour Forex Chart
Overlay of USD Pairs: 1-Hour Forex Chart

The Greenback had a weak start. And as noted in Monday’s Asian session recap, that may have been due to follow-through selling after last week’s disappointing NFP report.

The Greenback later regained its footing during Monday’s London session, though, apparently because of euro and pound weakness at the time, thanks to British PM Theresa May calling for an emergency meeting in the wake of the ECJ’s decision that the U.K. can unilaterally reverse Brexit, which fueled speculation that British PM Theresa May would either delay Tuesday’s “Meaningful Vote” or announce her resignation.

And as we now know, Theresa May announced during Monday’s U.S. session that the “Meaningful Vote” was delayed, and the Greenback (and the Swissy) were the main beneficiaries of that announcement.

The Greenback was forced to return some of its gains during Tuesday’s Asian session, though. And Vice Premier Liu He appears to be the culprit since China’s Commerce Ministry announced that Lie He had a telephone conversation with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, and that:

“Both sides exchanged views on putting into effect the consensus reached by the two countries’ leaders at their meeting, and pushing forward the timetable and roadmap for the next stage of economic and trade consultations work.”

Basically, that was a positive trade-related news, which probably convinced some market players to unwind some of their safe-haven bets on the Greenback.

Anyhow, Greenback bulls began to perk up again during Tuesday’s U.S. session since the euro started to slip after Italian Economy Minister Giovanni Tria said defiantly that Italy’s “budget will not be turned upside down” just a day before budget talks with the E.U. were set to resume.

And more USD bulls joined the fray when the pound (and the euro) got whupped hard, thanks to rumors that a leadership challenge against Theresa May was brewing.

Follow-through demand for the Greenback didn’t last very long, however, and the Greenback eventually began trading sideways before becoming more mixed.

The Greenback’s price action became somewhat uniform again since the Greenback became vulnerable to the majority of its peers when the euro and the pound started moving higher when the leadership challenge against Theresa May was officially announced Wednesday’s London session

However, the Greenback’s price action became mixed again in the run-up to the no confidence vote against Theresa May and in the wake of the news that Theresa May survived the leadership challenge.

The Greenback then weakened across the board during Thursday’s Asian session, likely because of positive trade-related news.

However, the Greenback would start to regain its mojo when Thursday’s London session rolled around, likely because risk aversion was finally making a comeback.

And when Thursday’s U.S. session came, the Greenback got a bullish boost when the euro got slapped lower because of ECB Overlord Draghi’s not-so-upbeat message during the ECB presser.

After that, the Greenback’s price action became more range-bound, but most USD pairs had a slight upward tilt, likely because of the risk-off vibes during Friday’s Asian session.

Greenback bulls were later jolted awake during Friday’s London session. And it looks like the Greenback gained mainly at the euro’s expense since the Greenback captured the bulk of its gains when the euro slumped because of the latest batch of disappointing PMI reports.

The pound was also retreating back then and risk aversion persisted, which also very likely fueled demand for the Greenback.

And in hindsight, it’s possible that the Greenback may have also been pushed higher by preemptive positioning ahead of the U.S. retail sales report since that printed an upside surprise for the headline reading, but buying pressure on the Greenback was muted. Heck, sellers even began to win out.

USD pairs remained well above last week’s closing prices, though, so the Greenback will soon be doing another victory dance.