Daily FX Research

All eyes on the Fed this evening as the USD sits near the lows of the year. With the Fed likely to maintain rates near 0% well into 2023, it's difficult to see any strengthening of the US Dollar. Congress are debating a new $748Bn stimulus bill, which could help extend the current bearish trend for USD.

The economic outlook is brighter for the US economy, with positive vaccine news supporting equity and commodity markets coupled with hopes of a new fiscal stimulus. While vaccine news is positive, it will take up to four months before enough people are vaccinated to feed through into the overall economy.

The Fed will leave rates at 0-0.25% today, promising to keep it there until their goal of maximum employment and inflation reaching above 2% for some time is achieved. We will likely see a change in forward guidance relating to asset purchases. Asset purchases currently stand at $80Bn of Treasury's and $40Bn of Mortgage Backed Securities. At present the guidance is that "over the coming months" purchases will continue "at least at the current pace". However I think that the duration of purchases is likely to be extended and that the pace pf purchases will be tied to economic conditions. Purchases will also begin to be tapered prior to any move in the interest rate.

Technically, the DXY is close to reaching 90.00 after breaching it's trendline resistance at the beginning of the month. I expect the bearish trend to continue with the next major support area at 89.00. Sentiment is super bearish currently, and will be interesting to see how the USD reacts to the Fed this evening. The 90.00 handle is an important "round figure also". while current backdrop remains, I would be looking to sell any USD strength.