FOMC 20th Sep. Overview
Previous reviews and what to expect now
The most expected event of week comes tomorrow being the FOMC decision rate. Just a brief sidenote, FOMC stands for “Federal Open Market Committee” now lead by Jerome Powell, is a committee within the Federal Reserve System of USA that by working hand in hand with the government defines and follows the monetary policy. In essence they make key important decisions on the interest rates and money supply that values or devalues US Dollar. I highly recommend to watch more about central banks on the following:
So this Wednesday we will have the key event of the week which is FOMC decision in regards to the next interest rate at 19:00 (UTC+1). So far the probabilities are at 99% and what markets have already priced in a no change on the rate staying at 5.25-5.50 (5.33%) according to CME Group.
During such type of events it is expected markets to have more volume and volatility and trading such events might be painful since brokers tend to increase spreads, high volatility might give entry slippages not able to processing order book entries in a timely fashion, brokers can freeze due to high demand… so if you are not an experienced trader, it is better be safe and catch movements after the dust settles. Although not always this happens and expectations can sometimes be deceived so it’s better to stay adaptive.
Going back to a recent history, last year 2022, we have been playing the biggest rate hike cycle in history of the US and events like FOMC and major inflation data reports had strong impact on the markets since we had successive hikes on 75bps, inflation was rising and there were a lot of expectations on when FED will stop hiking, how long it will take and when stimulus again. So economic data reports were very hot and we played Gold Sells and Dollar Bulls almost all the year of 2022 (until the narrative of FED pivot came, by October/November).
Having now a closer view on previous FOMCs, on 26th July, the last one, there was an expected rate hike of 25bps and almost the same speech used again as it was on June 14th. This decision was very well expected and also completed price in. By looking at the charts, we can see the Low V&V of such event and most of it during the speech and Q&A with an upside on Gold (roughly 100pips) and downside on Dollar.
Beside the low volume, during the speech gold went from 1967s to 1978s and after the dust settled corrected 50% of it’s move and during Asia gave continuation moves, roughly mirroring Dollar that had a bearish move, did the correction and continued on the next session. So this type of move can be caught without facing the uncertainties and stress of trading the news event itself as I was referring above.
Going a little further back to June 14th FOMC decision, the result was to keep rates at 5-5.25, also according to expectations. the strategy used for the speech was the same, no major changes from previous meeting, and as far we have seen this year JP pretty much has been using the same type of speeches with minor changes on the events.
On June 14th we had the opposite move of 26th July meeting (of course) and the volume wasn’t so much higher, but on the other hand the continuation moves after the event occurred happen in the same way as it did on 26th. Here we had a bearish move on gold that kept until NY next day (due to US data) and DXY kept bullish on the start of new session.
So with such in mind and as referred on week overview I believe this FOMC won’t be much different from the ones we have been having this year, unless some surprise comes. Beside that JP gave on the previous meeting chances to hike in September, much probably we will hear that again this time, but a situation similar to ECB last week has very low probability to occur due to the fact that US is way ahead of EU on such economic cycle. Looking of course on the trader perspective only, a rate hike surprise would be glorious due to the volatility that would come, but for me doesn’t make sense so far since the overall US data is still in line with the soft landing narrative that they are preaching and not yet putting any pressure on jobs FED neither to cut nor so far to raise again. So the focus will be also again on the speech to see if he brings something new that we could use in our favor.
Trade Safe and Trade Smart.