FOMC Rate Hike-Is that Big Surprise or Not for a Traders
Today’s Key Events:
Impact Currencies Forecast Previous Value
GBP - Average Earnings Index @05.30am GMT 2.4% 2.6%
GBP - Claimant Count Change @05.30am GMT 3.2K -42.4K
USD - CPI m/m @08.30am GMT 0.0% 0.6%
USD - Core CPI m/m @08.30am GMT 0.2% 0.3%
USD - Retail Sales m/m @08.30am GMT 0.2% 0.4%
USD - Core Retail Sales m/m @08.30am GMT 0.1% 0.8%
USD - Crude Oil Inventories @10.30am GMT 3.3M 8.2M
USD - Federal Fund Rates @02.00pm GMT <1.00% <0.75%
USD - FOMC Statement @02.00pm GMT - -
USD - FOMC Press Conference @02.30pm GMT - -
NZD - GDP q/q @05.45pm GMT 0.7% 1.1%
AUD - Employment Change @08.30pm GMT 16.3K 13.5K
AUD - Unemployment Rate @08.30pm GMT 5.7% 5.7%
*All Times are in GMT only.
> Today, FOMC decision has traders expecting a rate hike & hint for further reduction through 2017.
> Fed Funds futures show confidence of a 25bp hike at present with debate of 3 to 4 hikes for the year. It’s a high block.
> Whether Dollar, reserves or risk opportunities, traders be supposed to account for reasonable tentative impact.
The Fed Reserve is gearing up to raise interest rates for the 1st time in 2017 & as a substitute rising, US yields fell, spent USDJPY down with it. Though the dollar did not fall against other key currencies instead it respected across EUR, GBP, AUD, NZD & CAD. This value action tells us that yesterday’s move in bonds & the USDJPY pair is a function of profit taking before the most important event risk of the month & the quarter. The market has completely priced in a rate hike on Today’s event & the only surprise would be if the Fed Reserve decided to keep rates stable, which is extremely unlikely. Central bankers hatred big moves & if they feel that the market was mispricing prospects for tightening, someone would have supposed something by at present. As an alternative, we heard a chorale of US policymakers who indicates that March is the exact time for a hike. Of course none of this is surprising & our readers are principally interested in whether they should trade or fade FOMC.
Fed fund futures are presently pricing in a 60 percent chance of a 2nd hike in June & 80 percent chance of a hike by September 2017. This notifies us that investors are not persuaded a 2nd round of tightening will come swiftly and it’s up to Yellen to verify or reject these prospects. If Yellen is hawkish, signifying the Fed wants to be vigilant & emphasizes require for sustained to tightening, the trade is go after the price action & buy dollars post FOMC. Still if she sounds more unprejudiced and says they prefer to hold how the economy reacts to tightening or for more particulars on the fiscal stimulus plan, the trade will be to fade the rate hike. Any uncertainty from Yellen would be interpreted as negative for the USDJPY pair. For the currency pair to maintain its gains, we have to a clear promise from Yellen to additional tightening.
The euro stays below pressure before Netherland’s general election, which might influence elections in further parts of Europe. The anti-immigration, anti-EU parties have increased popularity across Europe & an unpredicted victory by the far right party would spark horror of a comparable victory in France. Happily it doesn’t seem likely but politics persists to drive insecurity for the euro. French Presidential nominee Fillon was put below formal investigation today & it is only a matter of time sooner than he withdraws. Unluckily his problems have boosted the popularity of Marine going into the 1st round of French elections upcoming month. Data from the Euro-zone was blended with industrial production increasing less than anticipated & German investor assurance falling short of estimate. Still expectations for Euro-zone growth rise sharply last month, which might be a reflection of the fresh improvements in the region’s economy.