Saturday December 19, 2015 - 11:44:40 GMT
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Dovish Fed At Lift-Off
John M. Bland
Fed Funds To Rise 25bp
With a 25bp hike in the Fed Funds rate already a given on Wednesday, the focus of trade after that announcement was on the Fed policy statement and Chair Yellen's press conference. Financial markets are always looking ahead and were already looking to the next policy move before the ink had dried on the policy statement on Wednesday. On balance, the markets judged the policy statement to be dovish. Some analysts did a keyword analysis on the statement. They found the word "Gradual" used twice. They also noted the Fed will be focusing on "actual Inflation" as opposed to PROJECTED inflation. This is said to be a victory for the doves who are in no rush to raise rates. This implies the Fed will not start to tighten further until prices actually rise. Lastly the Fed indicated that it would continue to reinvest bonds proceeds until well into the normalization process.
I had warned about the risk of extreme market volatility last week on the Fed policy announcement on Wednesday and was not disappointed. That volatility stemmed in part from the Short EURUSD trade being very crowded. Another factor seemed to be patches of illiquidity that might be the product of recent regulations on large institutions limiting their participation in the markets. We are moving now into the yearend holiday period which typically results in reduced activity until after the start of the new year.
The upcoming week will be active for market-moving announcements before the Christmas Holiday period.
High Impact News Items (GMT)
00:00 No Major Data
13:30 US- GDP
15:00 US- Existing Homes Sales
00:00 JP- Holiday
09:30 GB- GDP
13:30 CA- Retail Sales
13:30 US- Personal Income
13:30 US- Durable Goods
15:00 US- University of Michigan Survey
15:00 US- New Homes Sales
00:00 Many Holidays
13:30 US- Weekly Jobless
23:30 JA- CPI
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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