Fed Timing Hazy while Crude Oil Seeps Lower

August 20, 2015

Fed Timing Hazy:
The FOMC July meeting minutes showed that the central bank’s policy makers were still undecided on whether the US economy has a solid enough base to begin the normalisation of interest rates. The main points to come out of the minutes were that the labour market is near or at least very close to where it needs to be in order to lift rates, but it is the inflation outlook that is creating all the doubt.

Adding to the inflationary pressures that lower commodity prices are putting on the Fed’s 2% target, is the most recent devaluation of the Chinese Yuan. Several participants noted that a material slowdown in Chinese economic activity could pose a risk to the US economic outlook, but as this was the July minutes, the most recent Chinese moves hadn’t happened yet. This has caused the market to think that the member’s negativity around China can only get worse from here, therefore taking a September hike all but off the table.

From Bloomberg:

“The probability that futures traders assign to a rate boost next month slid to 36 percent, the lowest since July, from about 50 percent earlier in the day.”

probability

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On the Calendar Thursday:
USD FOMC Member Williams Speaks
GBP Retail Sales m/m

USD Unemployment Claims
USD Existing Home Sales
USD Philly Fed Manufacturing Index

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Chart of the Day:
I know that we’re now featuring Oil twice in the same week, but last night’s move was again too big to ignore.

Oil 4 Hourly:
oil5
Click on chart to see a larger view.

In Tuesday’s Daily Market Update, we spoke about this Oil 4 hour chart and that even though the channel was tight and likely to break, that the greater risk was still being long because of a break’s tendency to consolidate in a sideways motion or in the direction of the trend.

Oil 15 Minute:
oil6
Click on chart to see a larger view.

The 15 minute chart shows this scenario playing out to the tee. Price broke through the channel. Most likely simply because the channel was so tight and it ran out of room on the chart basically. I say this because there was no momentum behind the move, with price quickly pulling back to re-test the previous trend line resistance now as support. The re-test occurring lower than the original breakout point itself. Finally, with price unable to make a higher high on the breakout, price tucked back inside the original channel again and dropped HARD to new lows.

Thinking about charts and setups from the perspective of ‘which side of the trade has the greater risk if certain scenarios play out’ is a great market analytic method to add to your trading arsenal.

Do you think this way when entering trades? Mention @VantageFX on Twitter, leave a comment on our Facebook Page or simply reply below.

Dane Williams – @VantageFX

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