I was on a short vacation until yesterday, but obviously I didn't miss much. After the Dollar-Index (DXY) held the 110 mark last week Thursday, it was able to recover. However, the index did not reach the 112 level. In this respect, the FED could decide tonight where the Dollar breaks out of the 110-112 range. I maintain my view that the Dollar has downside potential but a daily close above the 112 treshold would have to be respected first.
High US interest rates have given the Dollar very good support together with its safe-haven status. But I am not sure how much upside potential there is left in interest rates. The high CPI numbers have already given medium- and long-term rates a decent boost. 10 years Treasury Yield has gone up from 2.525% to 4.053% (close yesterday) since early August. The 2 years Treasury Yield trades even higher around 4.52% at time of writing.
(source: cnbc.com)
The FED will stick to its restrictive monetary policy tonight and most likely raise their policy rate to 4.00% (from 3.25%). But the market is eagerly awaiting any small hint that the rate hike cycle may be coming to an end or not. In this respect, you should think twice about going big into the event. I will also reduce my positions by tonight.
Good luck,
Sebbo