FOMC Lead Up: The Sounds of Silence

December 15, 2015

FOMC Lead Up: The Sounds of Silence:
Can you hear that? That is the sound of silence, with quiet market action expected as we lead into Thursday morning’s FOMC decision. All I can say is enjoy the peace while it lasts!

With only 2 and a bit more days left before the Fed finally pushes the button on an interest rate liftoff, any strong directional moves in the US Dollar seem to have already been played out. Barring any market thinning as traders uninterested in a volatility play in the last calendar month of the year take their money to the sidelines, the squeeze has played out and we are going to head into FOMC with value in a move either way pending just how hawkish Yellen sounds.

EUR/USD Daily:
151215_eurusd_daily
Click on chart to see a larger view.

With all the talk now about the USD selling off on the expected dovish tone accompanying Thursday’s hike, the fact that price isn’t sitting on its lows in any of the majors (highlighted by the EUR/USD daily chart above), sets us up nicely for the possibility of now a hawkish surprise. I personally can’t see the Fed doing anything but coming across as the whitest of doves, dropping the words gradual, data dependent and intermittent wherever they can, but the charts definitely offer opportunity if you like playing the contrarian.

Remember China?:
Searching through the crowded Vantage FX Forex News Centre, I frustratingly can’t find our analysis following the September FOMC decision before my deadline, but if you remember, the reason they didn’t move in September when everyone was expecting them to, was global concerns mostly focused around China. The US data was there even back then but the Fed chose to take a wait and see approach to global conditions.

With emerging market economies back in the headlines, I just wanted to leave this point here. It is something that must be considered when you are drawing up your trading scenarios post FOMC.

“Ninety percent of economists in a recent Reuters poll predicted the federal funds rate would be raised by quarter of a percent point on Dec. 16, taking it to 0.25-0.5 percent.”

“The same poll saw a very gradual pace of subsequent increases, with the rate rising to between 1 and 1.25 percent by the end of next year and to 2.25 percent by end-2017.”

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On the Calendar Tuesday:
AUD Monetary Policy Meeting Minutes

GBP CPI y/y
EUR German ZEW Economic Sentiment

CAD Manufacturing Sales m/m
USD CPI m/m
USD Core CPI m/m

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Chart of the Day:
I’ve read a few headlines and market notes highlighting last night’s bounce in the price of oil and whether this could signal some sort of bottom. Today’s chart of the day takes a look at a few charts and what market sentiment could mean for Commodity traders heading forward.

OIL 4 Hourly:
151215_oil_4hourly
Click on chart to see a larger view.

First of all we take a look at the 4 hour chart, showing yesterday’s reportedly strong rally off lows. Strong rally off lows? It was ONE 4 hour, counter-trend candle that flew straight into resistance!

Come on guys…

OIL Daily:
151215_oil_4hourly2
Click on chart to see a larger view.

I included the daily chart here to highlight the major bearish trend line that price has tucked back in below, also showing the strong daily rally from a longer time frame view.

With short oil an already very crowded trade, taking a contrarian view does have its merit, but calling lows off these charts isn’t something I’m jumping out of my skin to do. Do you see opportunity buying oil?

Dane Williams – @VantageFX

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