FXStreet (Delhi) – Ned Rumpeltin, European Head of FX Strategy at TDS, suggests that at first glance, the December FOMC meeting should offer a fairly straightforward FX playbook; “the Fed is hiking rates, buy the dollar.” Key Quotes “Unfortunately, this week’s reality is not likely to be so simple. There are many moving parts; as is often the case, we can easily envision the whole of the event as being seen as something more than simply the sum of those parts. In particular, we note that a strong consensus has emerged for the Fed to deliver a ‘dovish hike’ and offset its policy action with statements designed to blunt the impact and emphasize the slow and gradual tightening cycle to follow.” “While reasonable and intuitive at face value, we think this heavy degree of consensus leaves markets open to being caught wrong-footed. On balance, we think the Fed will have a more difficult time persuading markets of a dovish outcome relative to current market expectations, as these expectations are already quite dovish to begin with.” “With not even two additional hikes currently priced into rates markets for all of next year, the Fed simply needs to keep its forecast profile from September unchanged to come out sounding considerably more hawkish than currently foreseen. We have highlighted key factors for market direction to sift through: 1. An FOMC statement that likely expresses greater confidence in the growth and inflation paths with risk that could finally be “balanced”. 2. SEP forecasts biased towards minor tweaks of stronger GDP growth, lower 2016 unemployment rate, and higher 2016 core PCE. 3. Dot forecasts then have less room than expected to deliver on broad reductions, as we see only the 2017 dots likely being cut, with much smaller risks for the rest of the dot plot. Importantly, the dots have acted as a ‘tiebreaker’ in the past when the market needed to sift through otherwise mixed messages. The same may be true this time with the FX market particularly focussed on the median 2016 forecast. 4. Operational details, where most primary dealers expect an initial maximum of US$500bn for the reverse repo (RRP) facility. We see more which could be USD supportive. 5. And a press conference with a Chair who will try to remain dovish but will likely reiterate to a market not priced for the next hike until July that every meeting remains “live.” For more information, read our latest forex news.