16 Jun 2015
FOMC Preview: Yellen might firm the September Fed rate expectations – Westpac
FXStreet (Barcelona) - The Westpac Team previews the June FOMC Meeting and further shares their outlook for Fed rate hike and the USD.
Key Quotes
“The cadence of the US data has improved greatly in recent weeks yet the USD’s price action is not yet convincing. The FOMC meeting should help “right the USD ship” however, with current conditions likely to be upgraded, Yellen should sound more upbeat on the outlook and Sep FOMC lift off expectations should ultimately firm (OIS pricing in a 50% chance).”
“The dot plot is unlikely to be the USD negative it was back in March - they signal a bare two hikes this year leaving little to no room for further reductions. The USD index should hold 94.00. Greek tail risk is underpriced.”
“Model: The G10 FX model portfolio makes an aggressive lurch into USD longs for the week ahead, a fresh long USD data surprise index signal the main catalyst. For the week ahead the model is long USD to the tune of 55.8% of the portfolio, up from 11% last week, an extremely lopsided exposure that is likely to remain in place for the three week duration of the signal. A good two-thirds of the USD long is attributable to the surprise index signal. The tenor of the US has continued to improve so much so that our US surprise index punched above our model’s lower -1 standard deviation threshold last week, triggering a formal mean reversion signal that yet more improvement in the complexion of the US data is upon us. Almost all the raw data points going into the calculation of our index beat expectations last week: net of revisions seven of eight data points were stronger than consensus, the best weekly “beat rate” since Dec 2014.”
“Technical: Bullish confirmation in May has failed to follow through as price steps lower in June and short term/medium term momentum hold a mild negative bias. May/June range holding.”
Key Quotes
“The cadence of the US data has improved greatly in recent weeks yet the USD’s price action is not yet convincing. The FOMC meeting should help “right the USD ship” however, with current conditions likely to be upgraded, Yellen should sound more upbeat on the outlook and Sep FOMC lift off expectations should ultimately firm (OIS pricing in a 50% chance).”
“The dot plot is unlikely to be the USD negative it was back in March - they signal a bare two hikes this year leaving little to no room for further reductions. The USD index should hold 94.00. Greek tail risk is underpriced.”
“Model: The G10 FX model portfolio makes an aggressive lurch into USD longs for the week ahead, a fresh long USD data surprise index signal the main catalyst. For the week ahead the model is long USD to the tune of 55.8% of the portfolio, up from 11% last week, an extremely lopsided exposure that is likely to remain in place for the three week duration of the signal. A good two-thirds of the USD long is attributable to the surprise index signal. The tenor of the US has continued to improve so much so that our US surprise index punched above our model’s lower -1 standard deviation threshold last week, triggering a formal mean reversion signal that yet more improvement in the complexion of the US data is upon us. Almost all the raw data points going into the calculation of our index beat expectations last week: net of revisions seven of eight data points were stronger than consensus, the best weekly “beat rate” since Dec 2014.”
“Technical: Bullish confirmation in May has failed to follow through as price steps lower in June and short term/medium term momentum hold a mild negative bias. May/June range holding.”