The much awaited FOMC meeting and expected rate hike take place this evening. The market is expecting 25bps or 0.25% rate hike. Anything other than that could send shock waves through the market and a huge amount of volatility. Trade cautiously!
Dean's Daily FX Update – 14 December 2016
In the Zone
- We cover all the pairs in the video this morning.
Noteworthy News
- Rex Tillerson has proved to be a controversial choice for Secretary of State, like Trump he is a business man with no previous political experience. He is also very friendly with Putin which scares the US public. There is talk that the Republicans may cross the floor on this appointment. In one of Trumps first decisions it will be interesting to see the reaction of the Senate, it may give us some clues as to what extent the Republican Party will “contain” Trump.
Recap
If you were ever uncertain as to when the FOMC decision was, yesterday would have been the first clue. There was some light two way trading but ultimately FX pairs did not deviate much from where markets closed on Monday. I think you may see something similar today as traders tread water until the big announcement. The equity markets continued its relentless run last night and the Dow come within a whisker of reaching 20k. I have missed a lot of the equity index run as I do think these markets are overheated and don’t want to be caught long with so much downside risk.
The EURUSD is respecting major MA levels and that is what we saw again yesterday, price traded at 1.0665 which is where the 200 hour MA sits and this is where sellers leaned. This area becomes an important ceiling today, a break above and the EUR will target resistance at 1.0700. My gut says that liquidity will dry up ahead of the FOMC and that our lower support levels are more in play today, the initial move after the Fed should be for dollar strength. The important lower levels to watch are the recent 1.0520 and 1.0500 (this is the swing low from 2003), the next major level below that is 1.0450 and if we break this support level then we go into uncharted territory and could trade a lot lower.
The GBPUSD is a little trickier to read as it has lost a little bit of correlation since Brexit, keep in mind that this pair is the only one to trade stronger after the US election. As it stands we have a definite hurdle at 1.2770 and I think that this level is going to be a tough one to get over. We will have to watch the Fed statement tonight to see how cable trades, a break of 1.2770 will bring 1.2800 and beyond in play and on the lower end we have some strong support levels between 1.2550 and 1.2500. Much like the EUR however a break below 1.2500 in sterling should trigger some major bearish momentum.
Can the USDJPY continue this upward trend, just like the equity market it seems to defy all the odds. Last week’s resistance at 114.70 has changed polarity and has now become short term support – it is only a month ago that 100.00 was major support and this illustrates just how much this pair has moved. On the announcement tonight the big top side level to watch is 115.60 and we will need to clear this hurdle with conviction, much like the equity markets though, my gut suggests that this pair is most at risk for a “wash out” tonight. After such a relentless move higher, the correction will be deeper than the other pairs, and a break lower of 114.70 could easily target 112.00.
Oil prices took a breather yesterday and this was illustrated in the subdued price behaviour of the USDCAD, the pair traded in a tight 30 pip range. There are some key defining levels in the pair also, resistance comes in at 1.3190 and on the lower end 1.3090, and one of these levels will definitely break after the FOMC this evening.
Both the AUDUSD and NZDUSD have been trading in tight ranges over the last week and those ranges have been discussed. I am waiting for these ranges to break before I commit to a position in those and there is nothing like an FOMC day to see ranges broken.
Tonight will be interesting, similar to last year an interest rate hike is considered a sure thing and I would be amazed if we were not to get one. The real question is what happens after that – will the USD have another bullish run despite the recent movement or do we see some profit taking on the “buy the rumour, sell the fact” method. The key tonight will be in the Fed Chair press conference, if she suggests that there are more interest rates in 2017 then the USD run continues and if she punts her cautious approach then we get a USD retracement.
Going on previous press conferences from Fed Chair Yellen however, her message will be clear as mud.
I have not included daily ranges today as on a day like this ranges mean nothing – anything can happen!
Important Economic Data out today
- 11:30 GBP Average Earnings Index
- 11:30 GBP Claimant Count Change
- 14:15 GBP BOE Governor Carney Speaks
- 15:30 USD Retail Sales
- 15:30 USD PPI
- 17:30 USD Crude Oil Inventories
- 21:00 USD Federal Funds Rate
- 21:00 USD FOMC Statement
- 21:00 USD FOMC Economic Projections
- 21:30 USD FOMC Press Conference
High Risk Investment Warning: Trading foreign exchange and/or contracts for difference on margin carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. Before deciding to trade the products offered by BlackStone Futures you should carefully consider your objectives, financial situation, needs and level of experience. You should be aware of all the risks associated with trading on margin. BlackStone Futures provides general advice that does not take into account your objectives, financial situation or needs. The content of this Website must not be construed as personal advice. BlackStone Futures recommends you seek advice from a separate financial advisor. Please take the time to read our Risk Disclosure Notice.
