• Given the level of complacency and proliferation of cheap funding, Fed policy is important for risk trends
• The upcoming FOMC decision can spur greater market reaction via updated forecasts and Yellen commentary
• For dollar impact, EURUSD and GBPUSD are key targets; but there are plenty of risk-sensitive pairs
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Market conditions change, and our strategy should reflect those changes. We have coded the DailyFX-Plus strategies for Breakout, Range and Momentum to adapt to these market shifts.
US monetary policy carries far more weight than simply shifting the dollar through interest rate expectations. The build up in leverage and risk exposure is founded in large part on the Fed's accommodation. What happens when investors recognize their pursuit of returns through borrowed funds and riskier assets has pushed them beyond the equalibrium of good risk-reward? That is not a realization that is made all at once within a large crowd, but it progresses with certain event risk. The FOMC decision today with its upgraded forecasts is certainly one of those catalysts. We look at the market's state heading into the event and the opportunities and risks that are present should it spark volatility.
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