Although the Federal Reserve decided to hold rates steady last week, Fed officials maintained that an interest rate hike before 2015 ends is still on the cards.
In an official statement, the Federal Open Market Committee announced that “The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
The slightly mixed signal caused Asian shares to open lower on Monday morning, following US shares which dropped 1.3 percent on Friday. The Fed’s decision to hold off this round was primarily due to fresh concerns about global growth, particularly in China. Traders say it’s more likely than not that the Fed will postpone liftoff until 2016, based on the current pricing of federal funds futures contracts.
Although Fed officials were basically repeating their same old story about achieving a 2 percent inflation objective, it might be worth noting that the Fed could possibly accept in inflation goal between 1 to 1.5 percent over the next few years, given the current suppression on global growth.
The Fed committee gathers next on October 27-28 and December 15-16. Its benchmark interest rate has been kept near zero since 2008 to spur hiring and investment amid the worst recession since the Great Depression. The Fed last raised rates in 2006.
The Fed’s twin objectives for its monetary policy are to achieve maximum employment and stable inflation, which it targets at 2 percent. The unemployment rate dipped to 5.1 percent in August. The Fed’s preferred gauge of price pressures rose 0.3 percent in the 12 months through July and has been under two percent for more than three years.
Investors will be focusing on flash business readings from China and the eurozone on Wednesday.
Futures now give just a 20 percent chance of a rate increase at the Fed’s October meeting, and 46 percent probability at December. Uncertainty over the global outlook and the Fed’s next move has stoked equity volatility, with the Chicago Board Options Exchange SPX Volatility Index, a measure of expected swings in US stocks, climbing 5.4 percent on Friday.
Ten-year Treasury yields dropped by six basis points last week to 2.14 percent. Major US indexes slipped more than 1 percent Friday, with crude oil retreating back below USD45 a barrel also driving losses among energy stocks.
NZD/USD dropped to 0.6370 on Monday morning after a gauge of consumer confidence slid to the lowest since 2012 for the third quarter. In Asia, the Korean won slipped 0.8 percent to 1,172.30 a dollar after rallying last week. The ringgit sank 0.7 percent following Friday’s selloff in crude.
Top News This Week
EUR: German Flash Manufacturing PMI. Wednesday. 23rd September, 3.30pm.
I expect figures to come in above 52.5 (previous figure was 53.3).
Canada: Core Retail Sales m/m. Wednesday, 23rd September, 8.30pm.
I expect figures to come in below 0.7% (previous figure was 0.8%).
USA: Final GDP q/q. Friday, 25th September, 8.30pm.
I expect figures to maintain at 3.7%.
Short USD/CHF at 0.9662
Following last week’s trade call when we banked in profits at the first target, we will go short on USD/CHF. On the H1 chart, USD/CHF has broken lower but retraced upwards. A support level is located at 0.9772 and we will go short once prices close below the support level.
We will go short once prices are at 10 pips below the support level. An entry is taken at 0.9662 and a stop loss of 45 pips is placed above the previous high. We will have two targets on this trade, exiting the first position at 0.9617 and the second one at 0.9572.
Entry Price = 0.9662
Stop Loss = 0.9707
1st Profit = 0.9617
2nd Profit = 0.9572