FED in focus

For traders there is no other trade than the FEDs announcement come 1800 GMT, with the market predicting a rate rise from the current 0.75% to 1.00%. This would be a momentous occasion as it would look to be the start of monetary policy returning to normal, and the market has big expectations with 94% of predicting a rate rise off the back of the Non-farm payroll results last Friday. So the market is pricing in rate rise, but historically the FED has been dovish and Yellen is not one to jump the gun on the back of market pressure. We could end up with a big swing if we don’t actually see a rate rise in this case, and it may fall to Yellen’s statement afterwards to provide real guidance for the markets. One thing that is clear is that regardless of a rise or not, the market will likely be quite volatile during this period and I would expect big moves off the back of this announcement across all major pairs and some commodities.

The USDJPY will be for me a big mover, as the market had been hedging in the USDJPY for some time off the back of the recent Trump election, and has been unwinding as of late in the build up to this FED announcement. Previous trending has so far shown a ranging pattern recently on the daily chart and the recent rejection at resistance at 115.630 is a clear signal that the market is pausing until it sees a much clearer picture from the FED. A rate rise tomorrow could propel it much higher to the next level of resistance at 118.688 and traders will be looking to open the flood gates here. No movement at all could send the USDJPY back down to support at 111.655. I would be slightly surprised to see it push through here unless the FED was very dovish, as it is likely that Yellen will be bullish in the event of a pause given the movements recently in the labour market.

Crude oil has been one of the interesting movers recently and with a new week and new figures we could see some fight back from traders. One of the key points though will be how OPEC reacts to the recent drops in oil prices, and could lead to calls from OPEC nations to extend production cuts further. I would be surprised to see the be less aggressive now, and it does feel that with the recent movements we will continue to see OPEC trying to influence as much as possible.

Looking at Oil on the charts and it’s plain and clear to see that it’s certainly hung up between support at 48.99 and the 50.0 fib level which is trapping it from further movements. Any strong directional movement from here will likely be carried forward, but it may be a case of Oil building up to tomorrows inventory announcement. A build up again will likely see oil retest the 61.8 fib level.