US FOMC Preview

By Brian Dolan and Jacob Oubina
forex.com


Summary Outlook:
(Monday, August 4, 2008) We expect the Fed to stay on hold when they announce their interest rate decision on Tuesday, Aug. 5 at 1415EDT/1815GMT, which is also the consensus market expectation. The FOMC statement is likely to retain much of the same language as the June statement, so this may turn into a non-event. But the risk is that the Fed highlights renewed downside risks to the US outlook, reigniting fears of a US recession still to come. It will be a question of 'tone'-have things gotten better, worse or stayed the same (weak)? We continue to favor buying USD on dips, as slowing global growth is undermining demand for commodities and reducing overall USD selling interest.

Market Impact:
Should the Fed indicate a bleaker US outlook, we would look for the USD to come under selling pressure, but view this as an opportunity to re-buy the USD on dips/re-sell EUR/USD and GBP/USD on bounces. Specifically, we would look to sell EUR/USD in the 1.5730/80 area and GBP/USD between 1.9800/50. We would steer clear of USD/JPY and the JPY-crosses in this environment, as the impact on the JPY-crosses and risk sentiment is unclear.