US DOLLAR RATE TURNS TO JULY FOMC MINUTES & JACKSON HOLE

US Dollar currency traders will likely parse the July FOMC minutes on Wednesday for insight on the central bank’s monetary policy outlook and the latest Fed rate cut

USD price action could be largely overshadowed by the Jackson Hole Economic Symposium later in the week

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US Dollar price action has boasted considerable strength throughout 2019 with the greenback rocketing to multi-year highs even in spite of the July Fed meeting interest rate cut. Looking for the next major catalyst, USD currency traders will likely peruse the July FOMC minutes for details on the central bank’s decision to cut rates for the first time in over a decade while markets await the highly-anticipated start of the Jackson Hole Economic Symposium.

DXY INDEX – US DOLLAR PRICE CHART: DAILY TIME FRAME (DECEMBER 07, 2018 TO AUGUST 20, 2019)

Chart created by @RichDvorakFX with TradingView

Although, the July FOMC minutes could fail to grab the attention of traders considering the text is backward-looking. The July FOMC minutes are potentially stale seeing that significant market developments have unfolded since the Federal Reserve deliberated US monetary policy last – like Trump’s tariff whiplash and 2s10s yield curve inversion. Nevertheless, the July FOMC minutes could still send the US Dollar swinging if the details found within warrant a reaction.

FEDERAL RESERVE INTEREST RATE RANGE PROBABILITIES – SEPTEMBER 2019

In his follow-up press conference accompanying the July rate cut, Fed Chair Powell labeled the central bank’s decision to lower its policy interest rate as a “mid-cycle adjustment” which suggests accommodation will be short-lived. As such, information revealed in the July FOMC minutes that underscores – or contradicts – Powell’s description could weigh on expectations for future rate cuts. Looking to the next FOMC meeting in September, markets are pricing an 82.6% chance that the Fed cuts rates by 25-basis points and a 17.4% probability of a 50-basis point cut. Beyond the September Fed meeting, which will provide markets with updated economic projections, rate traders are currently expecting roughly 75 basis points of cuts to the Federal Funds Rate before year-end.

That said, US Dollar price action in response to the July FOMC minutes is expected to be strong-armed later in the week by headlines coming out of Jackson Hole. Fed Chair Powell and other US central bankers will likely take the opportunity to lay the groundwork for monetary policy decisions in the months ahead. Consequently, US Dollar currency pairs could exhibit higher than expected volatility as markets remain juxtaposed between US-China Trade War uncertainty and relatively solid US economic data (such as the latest retail sales and NFP numbers) which might keep the Fed sidelined from further easing.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES

On the surface, US Dollar 1-week implied volatility readings seem quite low considering several measures are less than 12-month averages. Judging by options-implied volatility, expected US Dollar price action over the next week appears to be underpriced considering the daunting event risk posed by Jackson Hole which has historically sparked sizable market reactions. Moreover, US durable goods orders and consumer confidence data slated for release next Monday and Tuesday respectively both stand to spur US Dollar volatility – particularly if the actual readings on the closely watched economic indicators catch markets off-guard.

FOREX TRADING RESOURCES

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-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight