The latest event of the year, the much anticipated Federal Reserve of the United States FOMC (Federal Open Market Committee) meeting is finally behind us and, as promised, the Fed raised the rates. It was not a big hike, a quarter of a basis point, but according to the Chairwoman, Mrs. Yellen, next year if all goes ok with the US economy, we’re going to see a gradual tightening in the federal funds rate all the way to 1%, so basically another three to four rate hikes are on the pipeline.
The funny thing is that the market reaction was almost muted in the sense that the much anticipated rate decision of the year almost went unnoticed in the sense that one day after the hike levels were almost identical to the ones before the actual rate. USDJPY dealt 122.10 before the rate hike and it was around the same levels one day after, with other pairs doing the same.
It is considered to be the most telegraphed interest rate decision in recent times in the sense that the general market was informed well before so that it will not come as a surprise and send seismic shocks. Well, mission accomplished. What next for the US dollar? It is a bit difficult to put a value on the Fed’s decision as the press conference that followed stated many times that the strong dollar is a headwind for the US economy so it is not clear what the Fed’s intentions are.
However, I am favoring a lower US dollar against the JPY and CAD and these are the trades I took this week, on these lines, with various expiration dates, started with end of day and week and all the way to end of month when it was possible. While the USDCAD is clearly going through the rough in an unstoppable manner, it is the USDJPY that will balance the portfolio.
Bank of Japan Surprised Markets
It was Bank of Japan’s turn to surprise markets after its meeting this week as the general impression and expectations were that the central bank is going to add some more to the easing program they run. Currently in Japan there are 80 trillion worth of bonds that are being bought each and every month in a desperate attempt to bring back inflation to the 2% target but so far there is no luck in doing that.
The main reason for that may come from demographics as Japan’s aging population is making it difficult for spending to pick up, at least not in amounts that are supposed to bring CPI (Consumer Price Index) to the targeted levels. Because of the disappointment, the Nikkei had a one thousand points turnaround on Friday from the highs to the lows of the day and the move was mirrored basically on all JPY pairs. USDJPY tumbled almost to 121 at the moment this article was written and EURJPY and GBPJPY did exactly the same, dipping to levels considered impossible to be reached not a long time ago.
Oil Continues To Stay Bearish
Oil keeps staying bearish as it moves in small steps but no signs of a recovery there. Not only that the bounces are being met with more sellers, but it seems that bears are here to stay. This bearish state made the CAD (Canadian Dollar) to move lower against virtually all currencies as it is clearly the weakest currency of them all in the last two weeks. Even the CADJPY cross moved lower on Friday despite the Bank of Japan disappointment mentioned a bit earlier in the article. That says much about the oil market and makes the Goldman’s statement that oil will reach the twenty handle pretty much valid.
Holiday Mood To Settle In
For the first time in many years, this 2015 is going to have three days during which markets will be closed around Christmas and three days around New Year. This makes trading binary options a bit difficult as not all binary options brokers are offering end of month expiration date as it comes on a holiday and not even end of week expirations next week are not possible as Christmas will end the week.
That being said, December will be a tough month for those that trade with a medium term horizon and not with short term expiration dates as the focus needs to shift to lower time frames, namely maximum the hourly chart. Next week we’re going to see the final US GDP (Gross Domestic Product) numbers and we’re going to have an idea if the Fed’s intention to keep rising will have any chance to materialize. The final GDP is rarely different than the advanced release unless there is something drastic happening between the two releases, so it is very likely that the forecast is going to be met by the actual. This will bring another hike in March to Fed’s table.
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