It is only midweek and it’s been non-stop on the news desk. Every week it seems we are deluged with information and data that can easily overwhelm to the point of not knowing what is important to our trading decisions and what is not. One thing all traders know however is that when the FOMC speak the market listens. And it spoke yesterday.
Seeing The Wood For the Trees
Minutes of their October meeting were released yesterday afternoon. The commentaries launched into action with very different perceptions, something that can confuse. What they and the professionals look for from the FOMC is not just what they do say but also what they don’t say and even what they might not say the next time they meet. Certainly an opportunity for a lot of media spin and it is no wonder that markets spike on such news as many of them did yesterday. It is common to see the markets heading off in one direction and then sharply reversing.
Global Macro, Worth Getting to Know
The Facts.
The minutes of the FOMC confirm concerns regarding inflation targets and that they are vulnerable to the the pressure of lower energy prices. However, they saw the impact of global weakness at the present time as ‘quite limited’.. The decisions on rate hikes will depend on data.
This is consistent with their previous releases. The word ‘considerable’ remains to describe the length of time rates will remain at their current low levels. However there was a dissenter and a discussion about the use of the word.
They noted that in the labour market, ‘conditions continued to improve’. Overall a hawkish leaning and an upbeat meeting. In short, this supports a stronger dollar.
The Effects
When the initial volatility calmed, the EURUSD fell from two days of up moves as the dollar gained ground in its pairings. The Index advanced a little on the day having spent the week quietly consolidating its highs.
The Bond market took the yield up one basis point. This always reveals the markets safest view of where they think the interest rate is going and when. The advance was marginal but reflected the hawkish leaning. . US stocks also edged up after the release though The S&P did not reach yesterdays high point.
Surprise, Surprise
Back tracking now to earlier in the week.
The Eurozone and Germany had a heartwarming sentiment number on Tuesday and met some expectations last week.
However I hope it is not too harsh to say it will take more than confidence to fix euro problems and the FOMC has stalled the up move, some may have noticed, on a daily trend line!
In other surprises, after Marc Carney’s warnings last week that inflation could slip, the UK managed to exceed the expected CPI number, increasing to 1.3%. This index as an inflation barometer, is extremely important in assessing the strength of the UK economy. Fairly flat on the week, the GBP did actually gain against the dollar yesterday. Also strong against the ailing Yen.
New Zealand started the ball rolling on Monday with an increase in retail sales, however the currency has drifted further down with disappointing numbers from the milk auction which is a major item in the Kiwi GDP. The Aussie started out with a buoyant move up until the RBA’s chairman announced that the currency was trading above its value and a decline ‘would be useful’ ! It duly responded falling from .8793 and accelerated by the FOMC, is now near it’s week’s low at 0.8615.
No Surprise
As Japan throws yet more money at the economy, Abe calls a snapshot election and defers a sales tax increase. The Yen predictably tumbled further this week the USDJPY breaking a previous high and speeding up toward 119. Giddy heights they may be but the fundamentals can only point in that direction on recent news and developments. The Yen pairs are not for the faint hearted and the only way to get any perspective on the chart is to look at the monthly.
The US Producer Price Index edged up, another small indication of steady progress along with a good housing permit number. It all enters the equation of steady slow growth.
Global Macro This Week….What Else to Watch For
It is always a good idea to step back after big news and see how it is digested . We all know markets don’t move in straight lines and we can be sure that pullbacks and opportunities will present themselves but the bias continues to be towards the dollar strengthening further. Commodities are still falling and there are plenty of cross pairs to consider as we watch for the greenback’s next move. The USD index remains vital to monitor. It is interesting to note that this last strong advance only started in July. Once again the monthly chart gives a little perspective as well as showing us the potential resistance spots. It also displays a rather good-looking head and shoulders pattern. Food for long term thought !
Also left this week, PMI’s , purchasing managers index, which gives indication of economic growth with the critical level of 50. Slip below that and the economy is shrinking. Also UK retail numbers and US CPI, both inflation gauges so still plenty to tread carefully around for the next 2 days.
Back next week for a further fundamental focus!
Happy trading.
Judith Waker
Global Macro Forex Tips
0 Comments