Janet Yellen: A Face you can Trust

September 16, 2015

A Face you can Trust:
As the Federal Reserve prepares to raise interest rates for the first time since 2006, I cant help but laugh at the multitude of faces that Fed Chair Janet Yellen gives the media. Looking back at Big Ben Bernanke, he never gave us anything close to the now famous look! It’s the little things in life.

Well things finally come to a head tomorrow evening, as the FOMC sit down for their highly anticipated September meeting to decide on the path of monetary policy. There really hasn’t been this much conversation and polarised opinions surrounding a FOMC meeting for a very long time.

With the Fed seemingly on track to raise throughout the first two quarters of the year, recent stock market turmoil, complications in China and recent uninspiring economic data has provided a ready made excuse to hold off if the Fed feel they have to take it. Every piece of US data released overnight missed expectations.

USDX Hourly:
usdx
Click on chart to see a larger view.

With markets increasingly uncertain heading into FOMC, traders have taken the opportunity to take some profit and adjust major positions. Expect this theme to continue throughout today and tomorrow as market liquidity dries up and we play the waiting game.

Conversation:
If the Fed continues to put off raising rates, they can throw the ‘gradual approach’ out the window. They could easily find themselves trying to play catch up and have to raise rates faster than markets have expected, throwing out long term bond market prices and doing extensive damage to the Fed’s credibility.

By not raising rates, the Fed are sending a signal that things aren’t good at all. I know that the market is starting to price in a no change but accompanied by a negative statement on the economy, fear might take over and USD longs could get blown out of the water. For this reason, I just cant take the punt of holding positions into the decision.

For stability, the ideal outcome would be to raise rates and provide a dovish statement. What is your expectation?

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On the Calendar Wednesday:
NZD GDT Price Index (16.5% v 10.9% previously)

GBP Average Earnings Index 3m/y
GBP Claimant Count Change

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

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Chart of the Day:
USD/JPY traded higher after the Bank of Japan’s Governor Kuroda wisely chose to preserve their limited policy options as markets head into an expected US rate hiking cycle. Kuroda refrained from increasing the nation’s QE program, instead choosing to keep his powder dry.

USD/JPY 4 Hourly:
uj1
Click on chart to see a larger view.

Interestingly enough, USD/JPY has continued to print a short term triangle as price coils in anticipation of a FOMC inspired breakout. Even yesterday’s BoJ statement unable to sustain a move required to clear the technical level.

Do you see opportunity in trading Japanese Yen?

Dane Williams – @VantageFX

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