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On September 17th, the US Federal Reserve will announce if it raises the interest rates for the first time since 2006 or not.
There are so many questions surrounding this event and we at Platinum Trading Academy like to break down the whole event from the basic understanding of the event to charting the advanced trades.
Platinum’s fundamental overview on the fed decision is as follow:
FOMC: Federal Open Market Committee
President: Janet Yellen
Platinum Fundamental View
FOMC, WILL THEY? OR WILL THEY NOT?
I have been talking to my traders in this forex trading blog regarding this indecisive person by the name of Yellen, it is way beyond my scope after 15 years of trading to actually understand what is going through the mind of this person. We have been hearing nothing but empty promises of increasing the interest rates. First September then October than December. I mean she has an addiction to making false promises well -don’t they all? Here are my thoughts; for seven or eight years, the U.S. has basically had zero interest rates. All I hear is how good the U.S. economy is and how resilient the U.S. economy is, for all this good and resilience it can’t handle a 0.25% rate hike after eight years? Give me a break? Either the U.S. data is as questionable as the Chinese data, or Wall Street has Janet Yellen’s arm twisted so far up her back that she can’t sign the piece of paper sanctioning the rate increase. One thing I do know is that Main Street the USA needs confidence if rates do not move they will believe that they are being fed a load of nonsense once again and confidence in the economy will nose dive. Main Street functions on the mental state of the U.S economy and the U.S. economy needs confidence as it is consumer-driven. This consumer confidence feeds so many internal markets, housing, home improvements, retail spending, wholesale inventories etc.
If Yellen carries on behaving in this manner and does not sign this document authorising the interest rate, she will become another Bernanke.
With regards to the U.S. economy, the bravado from political commentators and analysts versus the actual economic data, which is mixed, makes for great TV but the continually mixed messages regarding the U.S. economic recovery and its strength is frankly confusing to many people. All this does is create uncertainty and affect confidence. It is quite bizarre and this continued uncertainty is bad for the markets.
Should the FOMC raise rates?
I think that after the dust has settled my long and well-known fundamental views on divergent monetary policy by central banks will come into play. The USD should strengthen across the board. I do however have this buy the rumour sell the news feeling. This 0.25% hike has had so much press coverage for months, but, it could be the biggest non-event ever after the dust settles.
Should the FOMC delay “All bets are off”
As far as I am concerned for a good few days, although unless the FED changes monetary policy, very unlikely, it just means the rate increase is more inevitable and closer moving ahead? However, a delay, in my opinion, is a weakness, and frankly, it will create uncertainty and we will have volatility based around uncertainty, which is the worst type of volatility to have. Should a delay happen, the analysts on CNBC would be running around like headless chickens trying to be the one who makes the most outrageous timing prediction moving ahead? You can just imagine the exaggerated headlines to keep viewers hooked… “Christmas at the FED is off”… “Janet Yellen has no time to buy a turkey this year as she agonizes over rate hike” and so on. Any proposed rate increases around December will, of course, create additional headlines and could affect sales around Thanksgiving (November 26), “Black Friday” and “Cyber Monday”. This is why I think the FED might raise this week in this forex trading blog.
Even if the FOMC raises rates and it’s viewed as an error in the future, the FOMC have a secret weapon QE Bloody 5!!
There is so much to consider for the FOMC, therefore it may be sensible to trade small if not at all until the news is out.
How to adjust your trading mindset to trade with the FOMC EVENT:
I have highlighted several potential opportunities within the USD majors for this coming week in this forex trading blog. I am however very cautious this week given that the FOMC will dominate proceedings. My feelings are that we will just mainly be range-bound up until the FOMC release. My gut feeling is that as usual when there is a major news announcement all that happens is that most well-traded pairs gravitate to the middle of their range in anticipation of the data release. From a trader’s perspective this week, in my opinion, whilst I can fully understand wanting to belong the USD ahead of the FOMC on Thursday, I would certainly be in the camp of, if you have trading fx positions open, they should be smaller. In my opinion, this is the week to pull back a little on being overexposed ahead of the FOMC.
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Hopefully, you have enjoyed today’s article. Thanks for reading! Have a fantastic day!
Nisha Patel
Live from the Platinum Trading Floor.