QuantumLogicTrading
Long

LONG DXY / USD: HAWKISH FOMC RATE STATEMENT - SEPTEMBER HIKE?

TVC:DXY   US Dollar Currency Index
The FOMC rate statement was largely in line with expectations and to the hawkish side - with a september hike hinted at. Much of which followed the rhetoric of FOMC members in the past few weeks (see previous posts) and data (disregarding the poor -4% durable goods mom print). Perhaps the most hawkish/ promising statement made for a Sept rate hike was the fact Fed George Preferred to Raise Rates to Range Between 0.50% and 0.75% - hinting hikes are now being considered. And "Fed Could Raise Rates Later This Year, Possibly As Early As September". Though on balance the Fed did repeat the dovish phrases "low/soft" several times when regarding various measures of inflation and business investment.


This FOMC Statement holds in line with my medium run long $ view (hike based) - especially against Yen, GBP, EUR, AUD and NZD who are expected to ease and thus policy diverge.

In terms of market pricing, the Fed Funds Future Option implied probabilities of a rate cut have continued their steepening this week - following the 3wk trend with Sept/Nov now pricing a 25.9/ 26.8% probability of a hike (up from 9% 2wks ago) - Dec             now has a probability of 41.8% and is showing some stability here, with a 50bps hike implied at 9.9% and rising steadily. From this the implied probability of one rate hike in 2016 is at nearly 70% (Nov+Dec) - which imo is in line, or slightly below my qualitative probability of 90%. With the probability of 2 hikes at 12.5% which is about what i would expect.

Nonetheless eyes are now focused on BOJ - which is expected to be a year changing meeting.

September FOMC Rate Decision Statement - 0.50% unchanged:

--Fed Leaves Policy Rate Unchanged, Says Near Term Economic Risks Have Diminished
-Fed Offers More Upbeat Assessment of Labor, Economic Conditions
-Fed Could Raise Rates Later This Year, Possibly As Early As September
-Federal Reserve Keeps Fed Funds Range Unchanged at 0.25% to 0.50%
-FOMC: Voted 9-1 For Fed Funds Rate Action
-Fed Leaves Discount Rate Unchanged at 1.00%
-Fed: Economic Activity Expanding At A 'Moderate' Rate
-Fed: Labor Market Strengthened, Job Gains 'Strong' in June
-Fed: Payrolls, Other Indicators Point to 'Some Increase' in Labor Utilization in Recent Months
-Fed: Market-Based Inflation Compensation Measures 'Remain Low'
-Fed: Survey-Based Inflation Expectations Measures 'Little Changed'
-Fed: Inflation Expected to Remain Low in Near Term
-Fed: Inflation Expected to Rise to 2% Over Medium Term As Transitory Effects Fade
-Fed: Household Spending Has Been 'Growing Strongly'
-Fed: Business Fixed Investment Has Been 'Soft'
-Fed Continues to Expect 'Only Gradual Increases' In Fed Funds Rate
-Kansas City Fed's George Dissents On Fed Policy Action
-George Preferred to Raise Rates to Range Between 0.50% and 0.75%
Been reading your post past few days. Do you think such risk on mode will put gold and risk-on asset to the down side and dollar on the driver sit this quarter?
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MrWondera MrWondera
I mean "hawkish mode"
Reply
Well technically yes.. hawkish fed should put a downer on risk (indexes) and boost gold.. but this bull market is v strong atm (after being depressed for 12-18mo) so it looks like risk will carry on until the BOJ on friday at least.

IMO BOJ friday is the major fundamental "Pivot" for risk - if BOJ deilvers risk will probably carry on rallying until mid-late august. If not, then i see risk assets down on the day and the 2016 risk-off trend resuming.
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Poor Dollar!
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