Fed Opens the Window, RBNZ Opens the Door:
Policy makers at the US Federal Reserve might not have quite left the door open to a June rate hike, but that gap in the open window to the side certainly looks like someone could definitely fit through it if they tried!
The Fed actually talked up the domestic US economy and was reasonably upbeat about the state of the global system. The biggest changes were around the wording ‘balance’ and ‘risk’. Ah yes, the subtle changes that mean so much when figuring out what to take from a central bank statement.
There was no mention of last statement’s global developments continuing to pose ‘risks’, with that line instead replaced with, we will closely monitor the situation.
Likewise, the word ‘balance’ that was used in the back end of 2015 to describe the outlook on economic risk was still omitted from the statement. I’m not sure that’s as dovish as what is openly being reported, but we all know that price is the only thing that really matters to traders here.
Click the above image to have a read of the official Fed statement yourself, but for those of you that have been taking positions, you only need to refer to the EUR/USD charts below.
The fact the daily chart is basically the same as yesterday’s, tells you all you need to know about market expectations and the lack of surprise delivered by the Fed.
Did someone say whipsaw? Price whipsawed yes, but the fact that there was no surprise and the rhetoric at least leaves the window open for a June hike, it shows our bias of market risk to the downside was good risk management. No it didn’t deliver you the risk:reward trade this time, but you were in the game to take advantage of a high ratio trade and you didn’t get burned when things didn’t go to plan. In the end, that’s the most important thing to long term success in this game.
Moving forward and it was easy to forget that the Reserve Bank of New Zealand also had an interest rate decision this morning.
While the media fanfare may not have been there (journalists have actually been banned from receiving embargoed information prior to the official release after leaks!), it is still a huge tier one event.
After cutting rates in March to 2.25%, the RBNZ left them on hold today. Although this was widely expected, the RBNZ isn’t exactly known as a conservative, wait and see type of central bank and the market had priced this risk of a surprise in accordingly. When no cut was handed down, NZD/USD jolted higher.
The RBNZ cited lacklustre inflation and the high NZD as major hurdles for the Kiwi economy.
You can now safely say that the RBNZ has left more than just the window open for further easing. That’s the front door wide open!
Keep an eye on the Technical Analysis section of the Vantage FX News Centre as well as the instant chart sharing ability of Twitter at @VantageFX, as we head into the Bank of Japan decision this afternoon during Asia.
On the Forex Calendar Thursday:
JPY Monetary Policy Statement
JPY BOJ Outlook Report
JPY BOJ Press Conference
USD Advance GDP q/q
USD Unemployment Claims
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