It’s Fed Day, or Jay Day if you wish. Markets await the words coming out of Fed Chair Jerome Powell’s mouth. Will he be hawkish or dovish?
Here is their view, courtesy of eFXdata:
Bank of America Merrill Lynch discusses its expectations for tomorrow’s FOMC meeting and the USD price action around the Fed policy decision.
“The Federal Reserve is likely to deliver a message of patience at the 30 January meeting, but we are skeptical it will be as dovish as the market expects. ..In particular, we expect the Fed to remove the perceived calendar guidance of “further gradual increases” and replace it with more data-dependent language,” BofAML projects.
“USD price action on Wednesday will be determined by Fed guidance with respect to the following: (1) policy bias; (2)assessment of risks; and (3) the balance sheet…On net, we think the Fed may not be dovish enough given the market‘s mindset.
Accordingly, we see USD event risk skewed to the upside against higher beta FX and to the downside against JPY and CHF, ie, a classic ‘risk-off‘ reaction in FX markets. The yen looks poised to outperform on the crosses,”BofAML adds.
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