“They want December to be more live”. From a market’s perspective, the meeting does highlight that event risk is becoming a very large trading risk.
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The Euro had a breakout setup for today.
Market participants see the probability of a U.S. rate rise in October and December at just six percent and 35 percent respectively, according to the CME Group FedWatch.
A note from analysts from CIBC read, “As expected there was no change in interest rates this month, but the Fed did take a step back towards possibly hiking at the December meeting by removing one of the additional barriers it inserted in September”, the note said. With more confidence in the Fed raising rates, traders should see the Bank of England following behind by tightening in Q1. However post meeting commodities corrected and today gold is trading around $1160 per ounce while base metals are down between 1-2%. Yet USA policymakers are encouraged by China and Europe’s actions because they removed the line about global market troubles from their statement. While there was confusion as to when (or if) the Fed would raise interest rates, the European Central Bank hasn’t explicitly stated when (or whether) it plans to expand its quantitative easing, a proxy for lowering interest rates.
The Euro currency futures (the daily chart is above) had a breakout setup for today- Tuesday was an NR4 day and a doji bar. The $40 mark is proving to be an important support level for oil but at the same time, $50 is an important resistance level and we expect both levels to be respected which means 1.28 and 1.34 will remain the range for USD/CAD. That yield had been moving higher ahead of the announcement.
Yet on Wednesday, the Fed surprised markets once again by issuing a relatively hawkish statement which omitted previous warnings about external risks to the USA economy and appeared to prepare the ground for a rate hike in December.
This gave the green light to a rally in the United States dollars and the Euro sold off hard as a result. The statement also repeats the Fed’s concern that inflation is running below the 2 percent level it feels is best for the economy. The spread isn’t what makes a pair, although the marketing professionals in the Forex arena would have you believe that.
Tom Porcelli, chief US economist at RBC Capital Markets LLC in New York, said the committee may try to put a positive spin on the weaker data to avoid sending too negative a signal.
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The Fed holding off yet again is good news for investors (Canadians included) because it suggests that easy money is going to be around for longer, helping to drive up asset prices in the short term.
