Traders prepare for another crucial FOMC meeting


  • Central Banks are at the forefront of traders’ minds as the Federal Reserve embarks upon another crucial meeting this week. Although the FOMC is not expected to move on interest rates, markets will be reactive to exactly how it sets its stall out. Additionally, Janet Yellen’s rhetoric in the press conference will set expectations for when the next rate hike could be, as could the much watched “dot plots”. However, the Fed is not the only central bank having its say this week. We’ve already had the Bank of Japan but there is also the Swiss National Bank and the Bank of England on the agenda. This is sure to drive a large amount of volatility.

FOMC yellen

  • The Fed is not going to hike rates tomorrow. Given the cautious rhetoric surrounding the January meeting, it would be an enormous shock to financial markets were the Fed to hike this time around. Even though the December dot plots suggested four hikes in 2016, the volatility in financial markets and cautious nature of the FOMC will ensure the decision to stand pat. However, according to the Fed’s own Dual Mandate, would this be the correct decision? Despite signs of inflation now beginning to pick up (still in the absence of any sustainable improvement in wages), it would still be wise to be cautious. The consistent issues the world has with the threat of deflation, it does not pay to be aggressive on tightening. The dot plots will be keenly watched (the December dot plots are laid out below) and are likely to show the Fed pulling back expectations on tightening to come closer to where the market is thinking. Current Fed Funds futures are pricing in June as the next rate hike now.

December dot plot

  • Beyond June it could get a bit tricky though as the no small matter of a Presidential election in November comes swinging into view. The Fed would not want to be seen as influencing the election so would likely to hold off from a hike in September (unless it was absolutely necessary). Therefore I am expecting a June/December hike this year.
  • Treasury yields have improved significantly in front of the latest meeting and this would suggest that the market is much more confident than just a few weeks ago. In the statement feel that the Fed will need to justify holding off from rates this time out but also look to guide markets towards a next hike in June.
  • Another key aspect that is just sliding under the radar a touch this week as the impending Fed meeting takes centre stage, is the oil price which is falling over. In recent weeks, oil has been a key driver of market sentiment and the fact that it has now broken its recovery uptrend could be seen as a concern. The correction seems to have been induced by the news that Iran is not willing to take part in any production freeze at least until its production has been ramped back up to 4 million barrels per day. This may not bode especially well for the potential for the agreement on production limits as just a week ago, Kuwait stated that it would only take part if all countries, including Iran, took part. This will now put added pressure on the meeting between OPEC and Russia which was due to take part in late March but may be delayed until April.
  • This is already impacting on general risk appetite, with the Canadian Loonie coming under pressure. We also find another commodity currency, the Kiwi dollar, sliding back to test key technical levels. The improvement in risk appetite in recent weeks has been based around these factors improving, however these improvements are now being called into question.
  • Another concern could be in the equity markets which found the positivity, that had been building in the wake of the ECB monetary policy decision, could now begin to wane. Equities have been recovering strongly, but could these moves come under some profit taking now? This could be a similar story with the gold price which is also beginning to show signs of strain. Could we be seeing the reversal of some of these strong recovery trends?
  • Other than the Fed on Wednesday, the SNB and BoE also announce on Thursday, whilst neither are expected to move on monetary policy. Swiss inflation ticked higher to -0.8% in February from -1.3% in January, with improvement in the PMIs, so the SNB is likely to hold off from reacting to the ECB this month. The Bank of England will not be looking at the recent economic data with too much encouragement and it is highly unlikely that there will be any movement in the voting structure which recently went back to 9-0-0 for holding steady.
  • Watch for: FOMC monetary policy



EUR/USD – The $1.1050/$1.1100 range is still key for the outlook

  • As the market volatility from the ECB decision begins to subside the euro is drifting back. The euro strengthened on the back of the assertion from Draghi that he did not see any further need for rate cuts but with the FOMC policy tomorrow possibly setting the groundwork for a June hike the drift lower could continue.
  • The pivot band $1.1050/$1.1100 is now supportive, but the corrective drift is setting in as the market volatility settles. A breach of $1.1050 would put the euro back into the trading band $1.0800/$1.1050 and this is a scenario that I favour currently.
  • Watch for: FOMC monetary policy

GBP/USD – The rally is failing now and a breach of $1.4115 opens the downside again

  • With both central bank announcing monetary policy this week the volatility could be ramped up. However, it is the Fed that is likely to be the one that drives potential rate differentials that should result in a drag on Cable.
  • The rally of the past two weeks is starting to be undone and a breach of the key reaction low at $1.4115 (that was the post-ECB low) would be a bearish signal. With momentum indicators falling away again the outlook is beginning to turn corrective again. A close below $1.4115 re-opens the downside.
  • Watch for: FOMC and BoE monetary policy

USD/JPY – Rangebound between 111/114.87   

  • The BoJ decision to stand pat has pulled the pair lower again but the yen is also being strengthened by the deterioration in the outlook for commodities and a flight from risk. The Fed will be a driver in the coming days.
  • Technically, the pair is sitting in a range above 111 and near term support at 112.15. The momentum indicators are reflective of this rangebound outlook and there is little to drive a strong move either way for now.
  • Watch for: FOMC monetary policy

Gold – Corrective forces finally starting to take hold

  • After two days of corrective candles the outlook is beginning to turn. Momentum indicators have been suggesting a weakness to the rally but the corrective forces are beginning to drag on gold and a retreat towards $1200 would be on should gold breach the support at $1224. Gold is likely to react with considerable volatility on the Fed decision.
  • Watch for: FOMC monetary policy

Oil – Long term bearish arguments are being broken

  • Iran not taking part in the production freeze is not helping sentiment, whilst a possible delay to the meeting between OPEC and Russia until April could also harm sentiment.
  • The uptrend on WTI has been broken and technically this could simply be a pullback to the neckline at $34.80. Momentum indicators are beginning to fall over and this support at $34.80 needs to hold to prevent a much deeper correction.
  • Watch for: EIA oil inventories, FOMC monetary policy

Indices – Correlation with oil still has a role to play   

  • S&P 500 – Breaking out above 2000 re-opened the upside but there needs to be a basis of support now between 1970/2000 to build from. The correlation to oil could be a problem though if oil starts to fall significantly again.
  • DAX Xetra – The DAX remains strong and the sequence of higher lows is still in place. Technically looking at the Fibonacci retracements of 8355/12390 have historically been an excellent gauge for the DAX. The key support comes in at 9498 now.
  • FTSE 100 – Oil could also be a problem for the FTSE 100 which is just showing signs of stalling in its recovery as the resistance at 6215 remains intact. The failure of the RSI up at 60 (once again) is also a problem and the support at 6037 now takes on added importance.



Tuesday 15th March

  • US – NAHB Housing Market Index

Wednesday 9th March

  • UK – Unemployment and Average Weekly Earnings
  • UK – Annual Budget speech
  • US – Building Permits & Housing Starts
  • US – CPI
  • US – Industrial Production/Capacity Utilization
  • US – Crude Oil inventories
  • US – FOMC monetary policy
  • New Zealand – GDP

Thursday 16th March

  • Australia – Unemployment
  • Switzerland – SNB monetary policy
  • Eurozone – CPI (final)
  • UK – BoE monetary policy & meeting minutes
  • US – Philly Fed manufacturing
  • US – Current Account
  • US – Weekly Jobless Claims
  • US – JOLTS job openings

Friday 17th March

  • Canada – CPI
  • US – University of Michigan Consumer Sentiment (prelim)



Monday 21st March

  • US – Existing Home Sales
  • Eurozone – Consumer Confidence

Tuesday 22nd March

  • Japan – Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • UK – CPI
  • Eurozone – German ZEW Economic Sentiment
  • US – Flash Manufacturing PMI

Wednesday 23rd March

  • US – New Home Sales
  • US – Crude Oil inventories

Thursday 24th March

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

Friday 25th March

  • US – GDP (Q4 final)


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