there are many political and idealogical factors behind this decision and this is a worry to investors and speculators that think this rate hike should not go ahead and that is only happening because of NON economical influences.
lets see first, prior to the 16th meeting >>>
the pair could well continue its momentum, revisiting the high of 1090 and even penetrating all the way to the 1200 area where the down trend of this year has been established.
also prior to the result and news release, some big brokers and desks will take positions to ensure they have enough liquidity to provide dollars to those who will buy it, so this will produce a few big EUR orders.
Take a look at the CME options expiring at the NY cut, this will give you a good idea of what level is the market expecting.
WITHIN THE MEETING/DECISION
the key word here is , while traders and brokers decide whether the statement is hawkish or dovish, you will probably see some spikes up and down as they hedge/cover and close their positions currently open.
no one will open brand new positions during the event unless is to cover their large contracts to prevent losses
here is when you need to be careful with your SL, if this is hit during the event then stay out until you can clearly asses the decision. in mind that experts analysts have great tools that electronically analyse the statement and is capable to identify different words and highlight this for the banks so their capacity of response is going to be pretty big nevertheless unlimited.
AFTER THE DECISION
here is when new positions will be opened, as liquidity returns and new players enter the market, big banks will look to find out how the decision affects their long term outcome and new positions could be undertaken over the next few days.
looking at where the initial spike ends up you can get an idea if the outcome was scenario A B or C but still.. this may not probe to be the case and the pair may reverses within a few days of the initial euphoric move.
SO IN SUMMARy
- Prior to the event, keep an eye on positioning
- during the event, could kill your positions, ensure you are covered
- after the event, reach the same conclusion than the big traders is essential, load yourself up with good news provider
- if you are not sure, or you have no capital, or you feel insecure about trading in historic events, please do not trade this event.
any questions, please ask below :)
---Rate hiked by 25bp so that discharges the other 2 scenarios we keep the most likely one
---FED did plotted where they are going to be over 2016 and maintained the DOT PLOTs modifying this slightly lower.
---the median rate is going to be lower than predicted (dovish signs)
---they did maintained the 4 rates over 2016 but Yellen said they will continue to monitor EM and incoming data closely (still a dovish sign although they give something before take something else)
---Finally although dint affect much the FX markets they removed the reverse re-purchase facility cap of 300bln
so, I think markets still have to digest these news.
Dollar weakness was seen during the first part of the event
Dollar regain strength later and is currently trading up 0,17% (not significant move)
SO... you will ask, what's next?
- well, Draghi will have to think and get creative as Dollar was mostly priced in, the only thing ECB can expect now is the rewinding of the long Dollar positions and un-hedging done after last ECB meeting. If we don't see this I still think Draghi will have to announce further stimulus to make sure the Euro is under control.
time will tell.. but my recommendation is
++Dollar to be weaker against G3 currencies
++Dollar to strengthen against EM currencies
++with the only exception of the Euro that will depend upon ECB/SNB action to be seen after Xmas holidays.