I have mixed feelings about this afternoon. I don't think the Fed will indicate that the December rate hike was a mistake, nor do I think they will turn clearly dovish. I think they will reiterate that future policy decisions will be data dependent. Perhaps they will acknowledge the weakness in the manufacturing sector. I have been saying for a couple of months that it is in a recession.
In other words we could see a mixed statement suggesting that jobs growth remains strong. Many doubt this and there are some mixed economic indications. I think they will provide no forward guidance about the March meeting and leave that decision open.
This outcome usually results in some wide price swings after the announcement. I also expect this today. Stocks should like a dovish Fed bias and dislike a hawkish bias. Those outcomes would be EURUSD bearish and bullish, respectively. My prediction is that we are in an unusual situation where the markets will be deciding if the Fed is dovish or hawkish could depend on the nuances of the policy statement.
Mtl JP 11:19:48 GMT - 01/27/2016
depend on the nuances = time to become interpreting linguists of FED pettifoggers drivel , artists of lex --- how does the FED gang want the market to react in aggregate
GVI Forex john bland 11:29:40 GMT - 01/27/2016
JP- That's the problem. I imagine the algos are likely to react immediately to the announcement of no policy change, but in any case the markets will be reacting to more than the headline in a matter of moments. If you are watching on TV, pay attention to what the people in the press say, because they will have had about 15 mins to read it in advance. But be careful because some, like Steve Liesman on CNBC, tend to have a pro-Fed, Pro-Obama bias. Act in haste and regret in leisure.
Mtl JP 13:24:15 GMT - 01/27/2016
john I am not thrilled to be in thrall to a minuscule group of "experts" and I entirely second your 11:29 suggestion
GVI Forex john bland 13:29:12 GMT - 01/27/2016
JP- You are hereby freed to do what you please. My comment was only a suggestion.
Mtl JP 13:33:56 GMT - 01/27/2016
thank you for the freedom!
now I feel lost
london red 13:40:42 GMT - 01/27/2016
due to voting rotation the first fomc os this year gets a little more hawkish by default.
mkt is maybe looking for some dovish comfort from fomc, correct to expect this if looking back. however, mkt has 1 hike priced in this year while fed has 3-3. do they look through this month and wait til march before lower their expectations? thats the key here and what will drive dollar. mkt doesnt appear to believe it will rein in hikes as yet, given stops are being squeezed on topside of euro which suggests a pop higher for usd after fomc. for now a couple of fibs 13/14 holding the euro. watch hourly close to see if they can get a close abv it. if not then bull trap and a nice wick which they might run with as some bigger expiries today from 108-10850.
london red 13:44:00 GMT - 01/27/2016
daily straddle 60 pips in euro, not a great deal historically. end of next week 140 pips but covers nfp.
GVI Forex john bland 13:45:50 GMT - 01/27/2016
Clearly EURUSD traders have already gotten set up for a dovish Fed statement.
You can make the case that higher Oil and equity prices reflect the same thing. ==>> higher growth on Fed ease
Of course this means the S&P to EURUSD correlation is illogical, but you have to go with what works!
Mtl JP 13:46:44 GMT - 01/27/2016
last euro COT was pretty huge
could be vulnerable
london red 13:51:17 GMT - 01/27/2016
yes but billions in options from 108 down mean downside is well hedged and so nobody to sell down there. so can go either way. pressure will always be on euro however since ecb v likely to act next month and mkt will as always front run before the juice arrives. so euro will be for selling rallies until fomc swings from a rising bias to a neutral or cutting bias.
GVI Forex john bland 14:02:29 GMT - 01/27/2016
Don't forget EIA Crude @ 15:30 GMT. Traders will be looking for the large API build reported last night to be confirmed. Large inventory build ==> lower prices. New Homes Sales @15:00 GMT.
Mtl JP 14:02:59 GMT - 01/27/2016
red what do you calculate a potential euro rally to be on a perception of "less hawkish than December" (ie a moderation in perception of FED-ECB divergence ?
Mtl JP 14:15:23 GMT - 01/27/2016
BoD and long while above 20 day 118.31
Livingston nh 14:24:18 GMT - 01/27/2016
Europe stox down modestly but showing some improvement into US open - so Fade the OPEN here // treasurys getting pushed around, maybe not expecting help from Fed or setting up for the auction
The oil effect may have run its course so the first reaction to stats may be wrong (not oil price but price of "correlated" stuff)
GVI Forex john bland 14:42:55 GMT - 01/27/2016
The crowded trade today is a dovish Fed. That does not mean it will not work, but you may have to be quick on your feet.
Livingston nh 14:53:09 GMT - 01/27/2016
John - Oct statement may be the template - nothing expected then, nothing expected now
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