PA,sentiment and volume are pointing at one clear direction.When major market events and volatility show up I always look to corner the market. What are the fears for tomorrow’s decision? What risks are in play and most importantly what is market pricing in? The scenarios are endless but one data is core, Inflation.
FED started hiking on the back of;
-stimulus package from Trump that has not materialised yet
-improving labour market which last month data was a clear miss
-wage growth which isn’t accelerating
-inflation which is falling off the %2 target figure
What are the options for Yellen tomorrow?
The most optimistic outlook would be to address lower ticking data and make any further moves data dependent. Moreover give more guidance on balance sheet reduction,that is really a key thing at the moment.
It is very likely that USD will initially tank as CPI numbers could turn lower pre FOMC. But any further move will be solely down to FED’s forward guidance.
Market has priced in what it knows, which most of it are the notes above. So what doesn’t it know? ;
Has the dot plot changed?
When is the balance sheet reduction kicking in?
The first question goes back to hiking which is likely to stay on hold after tomorrow. The second Q however will give USD a boost. It became clear from the FED minutes that policy normalisation is on their forefront and for that very reason we might hear Yellen touch on that. This will likely cause USD to ramp.
CPI likely to tick lower plus rate hike has got potential to send USD lower. However touching on unwinding balance sheet later in the day through the presser will give power to USD bids.
All charts and trading setups will be posted through my twitter feed.
Good Luck To Us All
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