Tag: FOMC

US Federal Reserve: Pleasing Everyone, Covering Up Problems

On By Financial Consultant _Forex_Gold Xauusd| Fund ManagerIn ForexLeave a comment

The September 2021 FOMC Statement via the U.S Federal Reserve was delivered Wednesday with great fanfare, but while it promised a lot it really changed nothing for now.

FOMC Statement Says Much, Does Little

The US Federal Reserve published its September 2021 FOMC Statement Wednesday and did not actually change anything drastic regarding its current monetary policy. Talk of Fed tapering in the US bond market was addressed, but the US central bank indicated that it is not ready to turn the faucet off quite yet and while it may start to limit purchases in the bond market, it might not be done until the spring of 2022. Gold traded slightly lower yesterday on the news.

Also noteworthy is that the Fed did finally seem to indicate it has a growing concern regarding economic data which suggests inflation may be more than simply transitory, but it did not hike rates. However, it suggested several interest rate hikes may be seen in 2022 and 2023 and these may continue until 2024 as the US economic landscape improves. The major US equity indices rose as a result, with the Dow Jones 30 up by over 300 points yesterday on the Fed’s pronouncements as the day finished.

Federal Reserve’s Smoke and Mirrors Game

Considering the massive amount of federal spending stimulus packages being undertaken by US politicians, while the Federal Reserve says it is pleased with current US economic data, the central bank did very little to address the ‘elephant in the room’. The fact that current US stimulus programs are creating a likely false narrative regarding real gross domestic product is a potentially troubling problem.

While Fed Chairman Jerome Powell pointed to solid economic data, he did little to point to the quantified statistical evidence that without the current amount of stimulus from the US government the past two years that economic data regarding GDP would be lackluster at best. Meaning that while the stock markets did well yesterday and gold floundered, it showed once again the power of cheap money versus the reality of quantified data. In other words, the markets are acting in a confident manner on the words of the Federal Reserve short term, when they probably should be considering getting nervous for the long term.

Smart Money versus Retail Traders

Contrarian investors who are not fond of the US Federal Reserve have reasons to be concerned this morning, because the US central bank continues to seemingly make short sighted decisions without considering data which will play a key role in the coming years. Consumer price index readings regarding inflation remains troubling and wage income growth remains below inflation. The US government can be said to be putting a band aid on an economic injury which needs much more care.

Yes, the US economy remains a solid driver of financial growth and sentiment globally, but there have been signs that a US economic slowdown may be building up a head of steam. This is part of the reason another massive stimulus bill with trillions of dollars is likely being advocated for by the White House, and very few politicians seem to have the courage to say no because they fear a voter backlash. 

Retail traders should always remember that institutional financial houses are trying to interpret the moves of the US Federal Reserve before the central bank makes their announcements. In other words, last night’s FOMC Statement had already been acted upon by ‘smart money’ ahead of the pronouncements. It is the retail crowd which is left to deal with the gyrations of market actions which are taking place via programmed trading.

Trading software within the giant financial institutions is set to move depending on quantified data and technical ratios and works with lightning speed. Retail traders should learn to try and eliminate the noise of the market which causes volatility in the short term because they will always find themselves trading in a reactionary manner compared to moves made by institutional financial houses. The short term’s bursts of volatility can be predicted but often proves dangerous, and the fluctuations usually adjust and find their steady long-term path once again after the short-term volatility has ended.

The Federal Reserve surprised almost nobody last night. While the USD was said to become stronger because of the statement by some analysts, the financial markets have been nervous since the first week of September and the USD in Forex has been stronger for a couple of weeks. The core interest rate of the U.S central bank remains near zero, and while sunnier days are promised by the Fed, it is very unlikely they would be eager to predict a storm. If inflation continues to nibble away at the economy, and corporations continue to be dealt commercial woes due to weakening consumer spending, this opens the door to the possibility of something the US Federal Reserve would rather not consider – stagnation.

Final Thoughts

The US Federal Reserve, while saying it will certainly act in the future, leaves the door open to not reacting, because there is a possibility economic circumstances will continue to change and catch the Fed shortsighted. The constant stimulus packages from the US government and parade of cheap money is intended to keep GDP strong and Wall Street competitive with loftier values. Unfortunately, while politicians try to keep everyone happy, the reality is that economic downturns are a natural and healthy part of the economic cycle when they are allowed to be managed with a light hand. By continuing to feed easy money into the US economic system, the medicine at some point may become rather ineffective and the patient may become more ill and harder to ultimately cure when the sickness becomes very dangerous.

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FOMC Meeting: Is It Time For Tapering?

On By Financial Consultant _Forex_Gold Xauusd| Fund ManagerIn Commodity, Forex, GOLD, Indices, INDICES, Online Forex Education, SILVER (XAGUSD), WTI, WTI CRUDE OIL, XauusdLeave a comment

FOMC Meeting: Is It Time For Tapering?

After months and months of speculation, it’s finally here. The FOMC is having a two-day meeting and the general understanding is that they will announce that they will start slowing down the pace of their asset purchases soon.

What does all the hype surrounding the event actually mean for traders? And what could happen in the markets?

Are they really going to taper?

This is actually a thorny question because there are a lot of options for the Fed. In fact, the more precise questions you ask, the shakier the consensus gets.

If the question is, “are we going to see something from the Fed?” the overwhelming response from analysts and economists is, “yes!”

On the other hand, if you ask “what exactly is the Fed going to do in terms of when the taper will start, or how much they will taper?” well, then the answers will be all over the place. Hence, we could see some extra volatility in the markets.

Generally, the Fed will let the markets know at least two months in advance that they will start slowing down their asset purchases. That means if they announce it tomorrow, we’ll see the taper in November.

The Fed could also stipulate a different timeframe, or they’ll most likely not mention a timeframe at all. Specifically, they might just simply say that it will happen “soon” or “in the coming months.”

What the market says

Such vague language would still lead market-makers to pencil in a taper starting in November. Nonetheless, they could allow the Fed some wiggle room if they want to start a little later. This could be for example because of issues around the Federal budget, the debt ceiling, or a worsening of the covid situation as we go into winter.

Then there’s the issue of how much to taper, which is now turning into the bigger factor for the markets. Currently, the Fed is buying $120B in assets per month, split between $80B in treasuries and $40B mortgage-backed securities (MBS).

The Fed could influence markets by foreshadowing how much they will taper by. However, the consensus is that the Fed will leave that for a future meeting. Either way, there seems to be an understanding that the Fed will start tapering by $15B a month, distributed as $10B in treasuries and $5B in MBS.

What to look out for

Beyond the taper issue, the meeting could also be hawkish because of the Fed’s outlook.

We get the first “dot plot” for 2024 rates, and the FOMC’s members will most likely signal that they expect rates to increase by then. The chances of a rate hike in the next three years have been steadily increasing. And analysts expect that the addition from 2014 will have even more members agreeing that rates will go up.

However, the forward rates suggest that the market isn’t confident that the Fed will be able to raise rates as fast as the dot plot suggests. This might be wishful thinking from investors hoping that accommodative policy will continue to support the market.

Regardless, if there is an increase in the number of FOMC members expecting a rate hike, then that could top the announcement of the upcoming taper.

We can expect the aftershocks of the FOMC decision to be around for a couple of days after tomorrow.

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Fed Reassures on Inflation and Tapering: 29 July 2021

On By Financial Consultant _Forex_Gold Xauusd| Fund ManagerIn ForexLeave a comment

Wednesday’s July FOMC Statement and Federal Funds Rate release did not produce any dramatic outcomes but seemed to act as the trigger for firmer short-term trends in the market which traders are looking to exploit today.

Federal Reserve Interest Rate Decision

The Fed left interest rates unchanged. It would have been a very major surprise if they had made a change.The rate has remained unchanged for a long time. It is anticipated that the next rate change will be a hike rather than a cut, but this is widely seen as unlikely to happen before some time in 2022.

Federal Reserve QE Decision

Ever since the 2008 financial crisis, the US Federal Reserve and other central banks have effectively been printing money and using it to buy stocks.Before 2008 this policy would have seemed incredible, now it is hard to imagine the absence of such a policy. In 2008 this was seen as emergency support for a cratering financial sector. Today, analysts wonder how markets would cope without it, which arguably seems excessive when you look at the extended bull market runs many major stock markets have seen in recent years.

In recent months, the Fed has taken stock of this and began to signal that it would soon look to begin “tapering”, meaning slowly turning off the free money tap that is artificially boosting stocks. However, the Fed is now saying that the required progress to begin tapering is “some way off” from the full employment and price stability apparently needed to safely begin this process, and that ideally rates would be hiked before tapering would begin.

Federal Reserve on Inflation

Jerome Powell, the Fed Chair, repeated his assertion that the relatively high inflation now being recorded in the U.S. economy is a transitory phenomenonthat will be over within months.Analysts are increasingly buying this point of viewwhich means that fears of inflation no longer seem to be causing market jitters.

US Advance GDP

The quarterly annualized rate of change in advance US GDP was released on Thursday, which suggest that the US economy is growing more slowly than expected at 6.5% compared to the consensus forecast of 8.5%. Despite this seemingly gloomy undershoot, the benchmark US stock market index the S&P 500 traded at a fresh all-time high price just a few hours later.

What Does This Mean for Traders?

To be frank, the fundamental data seem to be having little impact upon the dominant trends, whether short or long term. However, sometimes major data releases can act as a catalyst for a price move that was going to happen anyway, and this seems to be what markets are seeing now.

At the time of writing, we have both short and long-term bullish trends in the US stock market. In the US Dollar, we clearly have a short-term bearish trend, while the long-term trend still qualifies as bullish.

As these short-term trends look at least a little persistent and as they follow a major policy release, there are reasons to expect that the US Dollar will continue to sell off over the rest of this week at least, and that the S&P 500 Index will likewise continue to rise into new record high prices.

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Dovish #FOMC #jeromepowell supportive for #Gold $GC $XAU. 1795 major support level holds again – now targets 1815/1830. $USD is offered.

On By Financial Consultant _Forex_Gold Xauusd| Fund ManagerIn ForexLeave a comment

Dovish #FOMC #jeromepowell supportive for #Gold $GC $XAU. 1795 major support level holds again – now targets 1815/1830. $USD is offered.

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FOMC Minutes Trigger Risk-Off Flow: 8 July 2021

On By Financial Consultant _Forex_Gold Xauusd| Fund ManagerIn ForexLeave a comment

The FOMC meeting minutes released yesterday renew focus on talk of QE tapering, produce risk-off price movement. Will traders be able to profit if the Fed slip up and gets it wrong?

Yesterday’s release of the most recent FOMC meeting minutes revealed further evidence that the Federal Reserve is broadly aware that the unprecedented QE program, which has been running for several years now, is going to have to be wound down in the foreseeable future. The key quote from the minutes was:

”Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate…”

This is hardly fresh news,but even this mild language seems to have produced some notable risk-off flow.

FOMC Minutes Market Impact

There were meaningful market movements following the release of the minutes. Approximately sixteen hours following the release, the following price changes have occurred:

  • S&P 500 Index -1.34%
  • NASDAQ 100 Index -1.40%
  • Gold +0.43%
  • Crude Oil -0.68%
  • USD/JPY +0.66%
  • EUR/USD +0.32%
  • USD Index +0.01%

Interestingly, despite the FOMC’s message logically suggesting a strengthening of the U.S. dollar, it has remained basically unchanged. We see the impact in favour of the Japanese yen and against the U.S. stock market,although it should be noted that global stock markets have also been weaker lately, with the U.S. market bucking that trend over recent days.

This suggests that while the Forex market is dominated by price movements in the U.S. dollar, and although there is a long-term bullish trend in the U.S. dollar, the current area of focus on the Federal Reserve will produce most impact in stock markets rather than the Forex market.

What Does This Mean for Traders?

Traders should be aware that the fundamental issue which is likely to dominate markets for the foreseeable future regarding central bank policy will be the U.S. Federal Reserve’s coming attempt to slowly tighten monetary policy, moving away from its ultra-accommodative QE expansion stance. The Fed will be careful to do this very carefully and gradually, because there is plenty of evidence that without massive QE the bull market in stocks will come crashing to a halt, and the Fed will want to avoid that.

The major related question for traders is, if the Federal Reserve makes a mistake and is eventually forced into a hasty tightening move, will that be exploitable by buying the Japanese yen and shorting U.S. stocks which have benefited the most from the recent reflation? The answer seems likely to be yes.

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FOMC Projections Send Greenback Higher

On By Financial Consultant _Forex_Gold Xauusd| Fund ManagerIn ForexLeave a comment

The US Federal Reserve yesterday raised its forecasts for inflation and the pace of rate hikes, sending stock markets lower and the U.S. dollar higher.

Yesterday’s Federal Reserve statement and economic projections may have injected some directional momentum into the Forex market after several weeks which have seen major currencies consolidate with low volatility. This release may be the trigger for more sustained bullish sentiment on the USD, so this development is something traders should be paying attention to.

FOMC Economic Projections

The FOMC revised its prediction for the overall 2021 inflation rate strongly upwards, from 2.4% last month to 3.4%. Although this is well above the Federal Reserve’s target rate of 2%, Fed officials seem to be firm in their belief that this increase will be short term and transitory and will quickly average back down to 2%. Some analysts are convinced by this, while others are more fearful.We have already seen the U.S. inflation rate leap to an annualized rate of 5%just a week ago.

The FOMC also released the expected rate hike timeline from its members, and this has also produced a significant shift from last month, when the consensus saw no rate hikes before 2024. Now,the members collectively expect in their “dot plot” that the Federal Reserve will need to raise rates twice during 2023.

Finally, the FOMC also raised its forecast for 2021 GDP growth strongly upwards, to an anticipated 6.5% from last month’s 4.2%.

Market Impact

As a clear result of the forecast release, the US dollar climbed quite strongly within the first hour, and after not doing very much during the Asian session, has started again climbing to new highs. At the time of writing, the U.S. Dollar Index was up by 0.84% from its pre-release level.

Drilling down to the greenback’s performance against individual assets, we see it has risen most strongly against the following assets:

Although the Japanese yen has lost relatively little ground to the greenback in absolute terms, the bullish move seen in the USD/JPY currency pair is technically significant, as the price not only ended yesterday at a breakout to a new multi-month high, the 1-year high at 110.97 is not far off. As this currency pair has tended to trend reliably, it may be the most fruitful medium- to long-term ground to trade the USD rise. However, right now, there is no doubt that the more minor euro-linked currencies such as the SEK and NOK are falling fastest.

What Does This Mean for Traders?

There are only a few times in a year – if even that – when traders need to sit up and pay attention to potentially major shifts in market sentiment.This is because these changes often begin long-term trends which represent the easiest and best opportunities for profit.Today is one of these moments. Traders should not follow blindly but should be seriously looking to enter long trades in the U.S. dollar, especially against currencies which are relatively weak.

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