Fed Inspired Volatility

September 13, 2016

Image: fortunelivemedia, Flikr (cc)

And back the other way we go!

Last night saw the Fed speaker merry-go-round continue to spin, with Governor Lael Brainard chiming in to defend her position of keeping rates on hold.

“The case to tighten policy pre-emptively is less compelling.”

Brainard’s point revolved around that while the labor market was strengthening, the falling 4.9% unemployment rate had still failed to spur inflation and therefore urged “prudence in the removal of policy accommodation.”

Yes, basically the polar opposite of what we got yesterday… Modern markets at their finest and a day to day V shape on the charts!

S&P 500 4 Hourly:
Click on chart to see a larger view.

Price has paused at previous support turning possible resistance at the first re-test, but I just can’t see it holding. All things being equal, the ‘Boston Fed President Eric Rosengren drop‘ (as we’ll call it I suppose), should simply be retraced and ignored like nothing ever happened.

One recent example of this type of thing happened when Kuroda and the BoJ talked up the prospect of impending helicopter money. This of course sent USD/JPY on a 600 pip round turn as expectations weren’t met and we ended up exactly back where we were before the market tried to price it in.

Now with the above Fed position seeming to be the one featuring the most common sense, does this mean that some USD short trades could be on the cards? The hawks got excited in the lead up to Jackson Hole, but price was unable to pierce any meaningful resistance levels. A telling bearish sign as the fundamentals start to swing back the other way and near term rate hikes are being priced out again.

EUR/USD Daily:
Click on chart to see a larger view.

EUR/USD is moving up inside a bullish channel and has most recently re-tested short term resistance turned support.

A nice level to keep marked if you’re looking for longs on the pair.

USD/JPY Daily:
Click on chart to see a larger view.

Likewise on USD/JPY, we have a higher time frame bearish channel with price at resistance. If price rolls over here, new lows are certainly opened up if the Fed doesn’t move.

Happy trading!


On the Calendar Tuesday:
CNY Industrial Production y/y

EUR ECB President Draghi Speaks
EUR German ZEW Economic Sentiment

Win a Samsung by trading forex

Dane Williams – @VantageFX

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