The GBP/USD pair fell to a low of 1.5248 in the NY session on Wednesday after the FOMC statement revived hopes of a rate hike in December. The statement said the Fed is no longer worried about the global problems and expects the economy to expand at a moderate pace. It further said it would consider whether to hike rates or not in December.
Markets priced-in December Fed as a live event
By no means a December rate hike is a done deal as the Fed stays data dependent. Overall, the statement was not really hawkish, although markets read it so since December was almost a non-event till yesterday. What Fed did is it made December a live event, something which markets had not priced-in. Consequently, the 2-yr yield rose, pushing the USD higher across the board.
| Fed meeting | Rate hike probability before Fed | Rate hike probability after Fed |
| 16-Dec-15 | 30.50% | 42.60% |
| 27-Jan-16 | 38.80% | 52.20% |
| 16-Mar-16 | 57.30% | 67% |
The Fed rate hike probability in December is still below 50%. Moreover, the table represents the probability of a full 25 basis points move. However, the Fed could move a lot slower – 10 bps or 12.5 bps.
The rate hike bets could take a hit/or increase further in depending on the preliminary Q3 GDP due later today. A slightly better=than-expected GDP figure would be enough to push up Dec rate hike bets above 50% and lead to a fresh rally in the USD. On the other hand, a weaker-than-expected figure is likely to see the USD surrender part of its post-Fed gains.
Technicals – Bearish below 1.5248
A break below 1.5248 (50% of Apr-Jun rally) could open doors for a drop to 1.5185 (23.6% of Jul 2014-Apr 2015 plunge). The level has acted as a strong support and a break below the same would expose 1.5052 (lower end of the falling channel on the daily chart). However, a break below 1.5248 may not happen today as the pair may witness a loss of downside momentum. A failure to break below 1.5248 on the hourly chart would open doors for a corrective rally to 1.53-1.5333 (200-DMA). Overall, the outlook stays bearish below 1.5387.
EUR/USD Analysis: Bullish RSI divergence on 4-hour chart
The EUR/USD pair fell to an intraday low of 1.0897 levels in the NY session before recovering slightly to trade around 1.0930 levels in Asia today. The pair ended the NY session below 1.0940 (61.8% of Mar to Aug rally).
Focus on German unemployment data
The German economy has revealed its vulnerability to a slowdown in China in the last couple of weeks. The recent factory data and exports figure triggered concerns of a slowdown in EZ’s strongest economy. The concerns may rise in case the German unemployment change for October prints in the positive territory, as opposed to the expected figure of -4K. The unemployment rate is seen staying unchanged at 6.4%.
Technicals – Technical correction ahead
A better-than-expected figure could trigger a technical correction in the pair. A break above 1.0940 would open doors for 1.0996 (Oct 25 low). The prospects of a technical correction are high given the bullish RSI divergence on the 4-hour chart. Moreover, a 4-hour close above 1.0940 would add credence to bullish RSI divergence. Meanwhile, a failure to take out 1.0940 could trigger a break below 1.0897 and lead to a sell-off to 1.0850 levels.
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