US Dollar Looks to Durables, Consumer Confidence to Set Tone for FOMC

Talking Points:

• Quiet European Data Calendar to Put Spotlight on US Economic News-Flow
• US Dollar May Rise as Durables, Confidence Figures Tame Dovish Fed Bets
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A quiet economic calendar in European trading hours is likely to see traders looking ahead to the US data docket, where September’s Durable Goods Orders and October’s Consumer Confidence are on tap. Improvements are expected on both fronts, which may help moderate bets on a dovish rhetorical shift at this week’s Federal Reserve policy announcement and offer a boost to the US Dollar. Follow-through will probably prove limited however, with investors unwilling to commit to a firm directional bias until the statement following the FOMC committee sit-down is unveiled.

Recent weeks have witnessed a moderation in the post-QE3 Fed tightening outlook as global slowdown fears encouraged speculation that the central bank will want to safe-guard the US recovery from knock-on effects of weakness elsewhere by delaying normalization. Indeed, Fed Funds futures now reveal priced-in expectations of a rate hike no sooner than December of next year, far later than prior bets calling for a move around mid-year.

A change FOMC statement reflecting renewed concerns about persistently low inflation would validate this shift. Alternatively, a restatement of the status quo would hint the markets’ newfound dovish lean has over-reached. Considering the Fed’s steady hand through the first-quarter slowdown in US economic performance, the latter scenario seems more probable. We have entered short EURUSD.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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