It’s not long now until the most eagerly awaited event of the month for traders with the FED set to announce the outcome of their latest rate decision and release the accompanying statement and dot-plot at 7PM (BST). 30 minutes later Fed chair Yellen will conduct a press conference
Despite the earlier batch of soft US data expectations remain high for a 25 basis point increase in the target Federal Funds Rate to 1.25%. This would represent the second hike this year and keep the Fed well on track to deliver their projected 3 before the year is out. Derivative markets are currenlty showing an 89% chance of a rate hike, and whilst this is lower than the 97% prior to the worse than expected data this still is deemed highly probable.
Previously we have gone into more depth about what any changes to the dot-plot projections and/or comments relating to future balance sheet reductions could have as an impact on markets (please visit here for more info). Overall a more dovish outcome (suggestive of lower rates) would be negative for the US dollar and positive for Gold. On the other hand a hawkish surprise would see the US dollar rally and weigh on Gold.
Let’s now look at the charts of markets that could be highly sensitive to tonight’s events, beginning with the US dollar.
- This pair has fallen to its lowest level in almost 2 months today following the disappointing US data
- A break below the low of 108.93 on any USD weakness later would expose 2017 lows at 108.23 and should this fail to attract buyers then price would continue to fall towards 107.50
- A USD positive outcome later would need to see 110.50 cleared before any sustained move higher can occur. A break and close of 110.50 would open up a possible move to 111.88 and even 114.32 in the coming days
- This cross is sitting at a potentially crucial level going into this event with 112.84 a key line in the sand
- Weakness in the US dollar would see this pair rise and if there’s a clean break of 112.84 then 114.25 and even 1.1615 could be on tap in the not too distant future
- On the other hand if USD rises on the event then 1.1284 will have held as resistance once more. 1.1185 and 1.1020 are levels to watch on the downside.
- Gold has enjoyed a strong rise so far today and the market is sitting near its weekly highs going into the Fed.
- The weekly low around 1260 is a key level to keep an eye on and should we get a dovish outcome then the USD will fall and Gold rise. Upside levels to watch if this occurs is 1287 (from the broken trendline) and 1295 (from the big double top)
- Alternatively a hawkish surprise could weigh heavily on Gold and if the market falls through 1260 then 1245 and even 1214 could be seen ahead
- The leading US stock index recovered from a blip on Friday and has today rallied to within a whisker of its all time peak of 2443
- A positive outcome for stocks would likely see the market break through this all-time high with nothing by the way of swing resistance overhead. 2450 is a potential target as a round number but if the momentum is strong then 2500 could be seen in not too long
- On the other hand if stocks are spooked by the Fed then a move and close below 2415 would offer shorts a chance to see a sustained sell off. However it would not be until 2400 is also recaptured that a trend change could be seen as occurring with 2345 a level below here to watch should stocks pullback.