Sergey Kamenshikov, Ph.D.
IFC Markets
Fed meeting results and Yellen speech
On Tuesday the November inflation data were released in the US that made the market participants more confident about the interest rate hike. On Wednesday, December 16, at 20:00 СЕТ the US Fed will announce its decision and half an hour later Janet Yellen will comment on it. the interest rate hike has been expected for most of this year. How the currency rates will react on it?
Last time the Fed increased rates in 2006 and they remain unchanged since 2008. According to the polls, most of investors expect the considerable increase of the rates. Fed Funds Target Rate currently being at 0.125% may be increased to 0.375%, or threefold, according to consensus forecast. In 2006 it was at 5.25%. On Tuesday the core inflation for November came out which excludes food and energy. It increased by the modest 0.2% since October which was in line with expectations. This data made the interest rate hike more probable. Fed relies exactly on the core inflation while making its decisions and in this case the reading shall be low. The second indicator of importance is the labour market data which are currently strong and support the case for the significant rate hike, as market participants see it. The US unemployment fell to 5% in November, the lowest since 2008. In theory, interest rates hike shall support the US dollar and push down the precious metals prices. On Tuesday after inflation data came out the US dollar index slightly edged up while euro and gold headed south. Nevertheless, the plot thickens as markets are overly optimistic and the Fed may increase the rates just a bit for the first time. Let’s have a look at euro chart .
USDCNH
On the daily chart EURUSD:D1 moves sideways almost since the start of the year. Now it has verged its mean and the 200-day moving average and is traded in a narrow range for two weeks. The Parabolic and MACD have formed the buy signals. RSI is neutral and above 50. It has not yet reached the overbought zone, no divergence is seen. The Bollinger bands have contracted which may mean lower volatility and are tilted upwards. In our opinion, the momentum may develop when the price surpasses the last fractal high and 200-day moving average at 1.105 or falls below the sideways support at 1.078. The movement will depend on the market reaction on the Fed interest rate decision and the following speech of the Fed Chair Janet Yellen. The market will choose direction itself. Two or more positions may be opened symmetrically: having opened one of the orders the second may be deleted as the market has chosen the direction. Having opened the pending order we shall move the stop to the next fractal high (short position) and fractal low (long position) following the Parabolic signal every 4 hours. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position Sell
Sell stop below 1.078
Stop loss above 1.105
Position Buy
Buy stop above 1.105
Stop loss below 1.078
On Tuesday the November inflation data were released in the US that made the market participants more confident about the interest rate hike. On Wednesday, December 16, at 20:00 СЕТ the US Fed will announce its decision and half an hour later Janet Yellen will comment on it. the interest rate hike has been expected for most of this year. How the currency rates will react on it?
Last time the Fed increased rates in 2006 and they remain unchanged since 2008. According to the polls, most of investors expect the considerable increase of the rates. Fed Funds Target Rate currently being at 0.125% may be increased to 0.375%, or threefold, according to consensus forecast. In 2006 it was at 5.25%. On Tuesday the core inflation for November came out which excludes food and energy. It increased by the modest 0.2% since October which was in line with expectations. This data made the interest rate hike more probable. Fed relies exactly on the core inflation while making its decisions and in this case the reading shall be low. The second indicator of importance is the labour market data which are currently strong and support the case for the significant rate hike, as market participants see it. The US unemployment fell to 5% in November, the lowest since 2008. In theory, interest rates hike shall support the US dollar and push down the precious metals prices. On Tuesday after inflation data came out the US dollar index slightly edged up while euro and gold headed south. Nevertheless, the plot thickens as markets are overly optimistic and the Fed may increase the rates just a bit for the first time. Let’s have a look at euro chart .
USDCNH
On the daily chart EURUSD:D1 moves sideways almost since the start of the year. Now it has verged its mean and the 200-day moving average and is traded in a narrow range for two weeks. The Parabolic and MACD have formed the buy signals. RSI is neutral and above 50. It has not yet reached the overbought zone, no divergence is seen. The Bollinger bands have contracted which may mean lower volatility and are tilted upwards. In our opinion, the momentum may develop when the price surpasses the last fractal high and 200-day moving average at 1.105 or falls below the sideways support at 1.078. The movement will depend on the market reaction on the Fed interest rate decision and the following speech of the Fed Chair Janet Yellen. The market will choose direction itself. Two or more positions may be opened symmetrically: having opened one of the orders the second may be deleted as the market has chosen the direction. Having opened the pending order we shall move the stop to the next fractal high (short position) and fractal low (long position) following the Parabolic signal every 4 hours. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position Sell
Sell stop below 1.078
Stop loss above 1.105
Position Buy
Buy stop above 1.105
Stop loss below 1.078
This overview has an informative character and is not financial advice or a recommendation. IFCMarkets. Corp. under any circumstances is not liable for any action taken by someone else after reading this article.
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