Weekly Trading Notes – Will the Fed remain “patient”?


  • The build up to the FOMC meeting has been dominated by one question, will they remove the word “patient” from the statement? How this impact on traders depends on your time horizon. If you are a short term trader, the answer to this question could be crucial as it is likely to create significant near term volatility. Whereas a longer term trader may not be too significantly impacted as the US is almost certain to be the first mover amongst western economy central banks to raise rates. However, near term the market seems to have priced in a change to the FOMC statement after the strong Non-farm Payrolls. However there remain significant uncertainty with a series of data releases showing a near term deterioration (not to mention the fact that Q1 corporate earnings look set to decline).
  • If “patient” is removed then the dollar bull run will merrily continue to drag the Dollar Index above 100, whilst if the FOMC stands firm then there would be the risk of a move away from the dollar as traders take profits on their long dollar positions. Ultimately, as longer term players will argue, it would all simply be noise within the macro dollar bull run. However there is the potential for some significant near term volatility this week. The removal could herald a new sentence bases upon “data dependence”.
  • Greece is not of primary concern, but there is still a requirement for the measures agreed upon to be implemented and Varoufakis remains in the press for the wrong reasons which may make his job harder as time ticks around towards the end of the bailout extension.
  • The dollar strength has been a massive driver of markets in recent weeks. It is one of the reasons behind why Wall Street has been lagging so significantly, whilst also a reason behind the weakness in the oil price. Forex pairs have been gradually forming a consolidation in front of the FOMC, but still look to be set for further moves driven by the dollar strength.
  • WTI has fallen below its key support at $43.56 to another 6 year low as supply remains elevated and the news that the US is negotiating with Iran over a nuclear weapons agreement that would drive looser sanctions and result in increased oil production. Precious metals have also been under pressure from the strong dollar.
  • Wall Street has lagged as the strength of the dollar (up 25% in 8 months) will put strains on exporters. Also the falling price of commodities energy/basic materials sectors (c. 10% of market cap). The FTSE 100 is being even more driven by these issues and is underperforming the Eurozone indices. The DAX has stormed higher on the ECB QE story with its exporters benefitting from the dramatic selling pressure on the euro.
  • Watch for: FOMC monetary policy, flash manufacturing PMIs

Fed focus


EUR/USD – Sell-off stalling in front of the FOMC, expect direction after 

  • The market is leaning towards the Fed removing “patient” which should result in the dollar bulls regaining control once more. A failure could result in a move out of the dollar in the near term which would drive EUR/USD higher. This would still be a sell into strength but be careful not to sell too soon.
  • Technically the bearish outlook remains even though a near term trend has been breached. A consistent trading clear of the $1.0620 level which is the 61.8% Fibonacci projection would re-open talk of parity as the 100% projection if around $1.0050. In isolation this is a classic sell into strength, but the FOMC could create some significant volatility.
  • Watch for: FOMC monetary policy

GBP/USD – Use any strength towards $1.4850/$1.4950 as a chance to sell

  • Focus remains on the FOMC as the driver of dollar pairs and Cable is no different. The Fed seems to be the only player in town, but this week there are also minutes from the latest Bank of England meeting and also UK unemployment. The BoE is not showing any real signs of hawkish shift, but UK unemployment continues to be supportive of sterling.
  • The breakdown of $1.4812 took Cable to the lowest since June 2010, whilst momentum indicators suggest that downside potential is still present for additional losses. A strong band of near term resistance come sin between $1.4850/$1.4950 and looks ideal for a chance to sell. The momentum in this sell-off looks to be concerning for the sterling bulls.
  • Watch for: UK unemployment, Bank of England Meeting Minutes, FOMC monetary policy

USD/JPY – A confirmed break of 121.84 opens 124.16

  • The safe haven status of the yen is anchoring it despite the strength of the dollar which has been so significant on other forex pairs. This suggests that the market has an element of concern behind the potential move by the FOMC to change the statement.
  • It remains slow going for the dollar bulls, although the longer term trends remain very positive. A break of the support at 121 opens the key near term support at 120.60, whereas above 121.67 re-opens the recent multi-year high at 122.
  • Watch for: FOMC monetary policy

Gold – Moving in negative correlation with the dollar after the FOMC

  • AS the dollar has begun to consolidate in recent days so has the gold price. This suggests that the negative correlation remains sound and that in the wake of the FOMC meeting on Wednesday the gold price should move in opposite way to the dollar..
  • The outlook with consolidation below $1168 suggests an acceptance of the breakdown and should ensure a retest of $1143 and then probably the critical low at $1132 in due course. The only thing is whether there is a jump higher on the back of the FOMC holding steady.
  • Watch for: FOMC monetary policy

Indices – Volatility has increased in recent days in front of the FOMC

As the dollar has settled, equity markets have started to push higher again. Outside of earnings season the FOMC is likely to be a major driver of equities in the coming days. The announcement that the ECB only bought around €10bn in the first week of QE purchases (needs to buy c. €60bn per month) may be set to give DAX traders a slight reality check that the practice is harder than the theory. FTSE 100 remains stunted by commodity price weakness.

  • S&P 500 – Has jumped off support at 2040 back towards the resistance around 2080. Expect volatility to increase on the FOMC.
  • DAX Xetra – the upside breakout target of 12,000 has been hit and very quickly. The moves on the DAX have become incredibly volatile in recent weeks. A near term overbought position leaves the index at risk of a near term correction but it would be seen as a chance to buy. Support between 11,600/11,400.
  • FTSE 100 – Still struggling and is performing with the S&P 500. Resistance comes in around 6860, with momentum indicators neutral. The FOMC decision will guide near term moves.



Tuesday 17th March

  • US – Building Permits and Housing Starts

Wednesday 18th March

  • UK – Unemployment
  • UK – BoE meeting minutes
  • US – FOMC Monetary Policy + Yellen press conference
  • New Zealand – GDP

Thursday 19th March

  • Switzerland – SNB Monetary Policy
  • Eurozone – Targeted LTRO
  • US – Weekly Jobless Claims

Friday 20th March

  • UK – Public Sector Net Borrowing
  • Canada – CPI



Monday 23rd March

  • US – Existing Home Sales

Tuesday 24th March

  • China – HSBC Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • UK – CPI
  • US – CPI
  • US – Flash Manufacturing PMI
  • US – New Home Sales

Wednesday 25th March

  • Eurozone – German Ifo Business Climate
  • US – Durable Gods Orders
  • US – Crude Oil Inventories

Thursday 26th March

  • UK – Retail Sales
  • US – Weekly Jobless Claims
  • Japan – CPI

Friday 27th March

  • US – GDP (final)
  • US – University of Michigan Consumer Sentiment (revised)


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