A 25bp cut is more or less a done deal but the focus is on the refreshed dot plot, which will provide guidance on Fed members’ expectation on rate cut trajectory into 2025 - 26. Dollar Index (DXY) was last seen at 107.00, OCBC’s FX analyst Frances Cheung and Christopher Wong note.

Bearish reversal requires a decisive break below neckline support

“The previous dot plot back in Sep guided for 4 cuts (or 100bps) in 2025 and markets are now pricing in about 2 cuts (or 50bps). If the dot plot points to 2 cuts or less for 2025, markets would read it as hawkish, and the USD could see another round of strength. But if dot plot points to 3 cuts, then this would be interpreted as less hawkish than expected.”

“On this note, we may see a sigh of relief for risk proxies and USD strength can be pared back. However, if dot plot still points to 4 cuts (no change from previous), then we can expect to see USD trade much softer.”

“Daily momentum and RSI indicators are flat. Head and shoulders (H&S) pattern remains intact with DXY rejecting the second shoulder. We continue to watch price action. A play-out of the H&S pattern (bearish reversal) requires a decisive break below neckline support. Next support at 106.20/50 levels (23.6% fibo, 21 DMA), 105 levels (38.2% fibo retracement of Sep low to Nov high, 50 DMA). Resistance at 107.20 (both shoulders), 108 (2024 high).”