Global macro overview for 18/09/2017:
The Fed's blackout period ahead of the FOMC meeting on 20 September has already begun and three of the voting FOMC members (Brainard, Kashkari and Kaplan) took the opportunity last week to express concerns about inflation, as it continues to run below the 2% target projection. It is widely expected, that Fed will announce "quantitative tightening" at the upcoming meeting which means a reduction of the money being currently printed. The possibility of an interest rate hike in December is still relatively high and as long as FOMC members put more weight on the labour market data, not least due to Yellen's strong belief in the Phillips curve. This point of view was recently supported by the NY Fed President William Dudley. Moreover, according to a simple Taylor rule, which links the Fed funds rate to inflation and unemployment, the interest rate should be around 3% now. Market participants do not expect a rate hike in September, so any move like this by Fed would be a great surprise and have a big impact on US Dollar across the board.
Let's now take a look at the US Dollar Index technical picture on the H4 time frame. The market was capped at the golden trend line resistance around the level of 92.54 and currently reversed slightly lower. No new low was made, so the bulls are still ready to become active again as soon as the positive news or data will be released (Fed meeting is this Wednesday). For now, the index might get less violate and continue the sideways movement, but it is worth to keep an eye on the key levels: 92.54 for the upside, 91.02 for the downside.
