Forex markets have been fairly quiet as we head into tonight’s FOMC meeting and monetary policy decision.
The probability of the Fed raising rates this month is very low according to overnight swaps (2.5%), Fed Funds futures (4%) and Surveyed Bloomberg Economists (1.3%). The big news tonight will be all in the way Yellen words her language to indicate any forward guidance. If not tonight, and it is highly unlikely this will be the case, markets will look for any indication on whether they will make their move in September or December.
After a disappointing 1st quarter written off by the Fed as seasonal, there have been widespread improvements in the US economy since. The Fed will should look to prepare the market for a rate hike as soon as possible, giving everyone plenty of time to digest the move and avoid any vertical reevaluations in markets.
I’m expecting a hawkish tone from the Fed but if they disappoint then I will definitely view it as a USD buying opportunity on any spikes I can only see as irrational.
On the Calendar Today:
The early news release out of New Zealand was the GDT Price Index showing the change in the average price of dairy products sold at auction. The number was slightly better than the previous reading this month, but the Kiwi was unmoved. It’s all about FOMC later tonight!
We do have some important GBP sensitive news out of the UK with unemployment claims and the interest rate vote for each MPC member during the most recent meeting.
NZD GDT Price Index (-1.3% v -4.3% previous)
GBP Average Earnings Index
GBP Claimant Count Change
GBP MPC Official Bank Rate Votes
CAD Wholesale Sales
GBP BOE Gov Carney Speaks
USD FOMC Economic Projections
USD FOMC Statement
USD Federal Funds Rate
USD FOMC Press Conference
Chart of the Day:
With price sitting smack bang in the middle of it’s 500 pip daily range between 75 and 80c, AUD/USD is just waiting for direction from the Fed. It really didn’t matter what the RBA had released yesterday in their minutes. With the Fed tentatively in play the majors are all driven by the USD side of things from here.
The 4 hourly shows price coiling into a nice triangle, awaiting a breakout either way. I want to just advise trading this in the breakout direction heading into news. This pattern so often gets chopped up at it’s conclusion rather than trading as a pure breakout like the trading text books tell us.
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