A week had passed since the March meeting of the HIF, and already have the ability to understand its outcome.
The meeting marked a softer stance of the Federal Reserve, but, judging by the reaction, was much stronger than expected by the market.
Mitigating the position followed by the Federal Reserve after a clear improvement in the labor market, inflation rates and inflation expectations.
From the point of view of the objectives the goal of the Federal Reserve not only met, but also, it seems that exceeded.
Core inflation rose to 2,3%, PCE-GDP deflator rose to 1.7% and is higher than the Fed's assessment at the end of the year, unemployment at 4.9% and is expected to continue its decline. Formally, the US economy is in great shape.
US GDP forecast for the first quarter is very good: in particular, the Federal Reserve Bank of Atlanta, featuring accurate predictions, forecasts GDP growth in the first quarter at 1.9%.
How is it made possible that the Fed, which at every opportunity emphasized that his position depends on the economic data began to ignore these data?
Reporters tried during a press conference to address these issues Yellen.
But to no avail. Janet Yellen with such imperturbable confidence reflects those issues that create the impression that there is some secret information that it can not tell us.
Maybe it was the setting with the G20, held recently in Shanghai, that is necessary to prevent a further appreciation of the dollar? I would not rule out the secret agreements ...
Among the largest central banks, there are two that are interested in a strong dollar: it is the ECB and the Bank of Japan.
The rest, and above all, the People's Bank of China are interested in a weak dollar.
The position of the Federal Reserve, indicated at a meeting on March 17, little explicable in terms of HIF forecasts, assessment of the economic situation and the future path of interest rate increase.
Perhaps the negative surprise for the market was the phrase in the second paragraph that "the global economic and financial developments continue to pose a risk."
Reaction to the meeting of HIF was quite a sharp drop in the US dollar. It lasted only two days. On Friday, market participants rethink the results of the meeting, the dollar turned around and has been growing for four days on all currencies.
The first market reaction to the meeting of HIF was a mistake. Interest rates are determined by exchange rates, and the Fed's position is still the most hawkish of all central banks.
Many impatient readers probably think: so many text, and where the answer to the main question - what will happen to the US dollar?
Unfortunately, a clear answer to this question can be given.
Leaving aside all the graphic layout - there are contestants who successfully make it for me.
I am writing in fact, but the essence - it is fundamental analysis.
I think that everything will remain as before.
dollar dynamics will determine the economic data, the statements of officials of the Federal Reserve, the appetite for risk, action or inaction of other central banks.
The dollar is actually clamped to the range, but not in all currency pairs, this range is well looked through - somewhere he had just formed. The range is wide and the dollar will stay in it long.
In some range of currency pairs can be seen quite clearly: for example, in EURUSD. This range of 1,08-1,14. I am confident that at its edges is very thick, almost impenetrable wall of bids for sale and purchase. We need some very strong arguments in order to break through this wall.
In other currency pairs, such ranges are viewed much worse. The reason is that each of these rates have some of his own theme.
For the British pound is a referendum on EU membership. Now, according to various surveys and assessments of the bookmakers, for withdrawal from the EU in favor of 40-45% of Britons. When it becomes 50%, GBPUSD will be around 1.35. If for the output will be the 60% of Britons, the GBPUSD may come to the area of 1.30. If the British vote for it to remain in the EU, GBPUSD may increase to 1,50-1,55.
On the CAD is heavily influenced by oil prices. And since I expect that the oil in the next few weeks will be corrected at least in the area of 34-36 dollars, while USDCAD could reach 1,35-1,36. Oil, in turn, is now very much correlated with the risk appetite, as I have written repeatedly in my articles. Consequently, USDCAD will depend on the risk.
AUD and NZD are also highly dependent on the risk. But there will still be admixed with the effect of the Chinese yuan. While the People's Bank of China has made a pause in the national currency devaluation, but he has no choice but to come back after some time to this policy.
The Japanese yen also actually highly dependent on the Chinese yuan. Many people probably do not understand why during the recent rally in the stock market stubbornly USDJPY declined, breaking as usual correlation. All easily explained: because it fell USDCNH.
Thus, the US dollar will remain a long time in the range and dynamics it will be mixed.
Author forex analyst Nikolai Ludanov Source