US Dollar, Risk Appetite Likely to Return to Trend On FOMC Decision 

US Dollar, Risk Appetite Likely to Return to Trend On FOMC Decision

Fundamental Outlook for US Dollar: Neutral

• An in-line 3Q GDP reading doesn’t stir enough speculation to redefine stimulus expectations and risk appetite
• The Federal Reserve asks its Primary Dealers what they think the size and maturity of QE2 will be
• Congestion is the state before breakout – but what direction is EURUSD heading from here?

Before delving into the fundamental possibilities for the dollar over the coming week; we should first reflect on the ‘neutral’ forecast I have levied against the currency. In fact, the currency is highly likely to catch a trend next week on the long-awaited announcement of the Federal Reserve’s monetary policy plans. However, the bearings that the dollar takes and the pace with which it is imbued can be highly variable depending on what policy officials agree to. If we were to have ‘activity level’ as an assessment, I would have set it to ‘extremely high’ and established the scenarios for direction from there. That said, if given a two-to-three week horizon and told to determine the most likely course for the dollar, my inclinations would lean more towards a significant recovery effort for the severely weakened currency.

In assessing the dollar’s future, there is little doubt that one event dominates the currency’s dance card. The Federal Open Market Committee (FOMC) is expected to deliberate on the economic and financial health of the US economy and announce what actions it will take come November 3rd at 18:15 GMT. Economists and the speculative market are already heavily favoring an increase in stimulus. ‘If’ is no longer th