A Balanced FOMC Statement
Let’s not read too much into today’s FOMC statement. The committee voted to hold rates near 0% as expected. Tapering continued, and the amount of QE was reduced from $25B to $15B and is projected to be completely removed in October. Today’s quarterly economic projections have not shifted materially, except for a slight “downgrade” in employment and inflation. We did see a slight slowing of the pace of job growth in Q3, though there was a minimal uptick in inflation.
The language is very similar to that in July, specifically in regard to the time-line of future rate hike. Fed chairwoman Janet Yellen reiterates, “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends…” (source: fed statement)
Here is the FOMC’s dot plot, each dot representing rate projections of current voting members of the committee:
(click to enlarge; source: FOMC Economic Projection)
The projection of the first rate hike remains centered at mid-2015. There are two hawks and dissents regarding the timing of tightening monetary policy. They were Plosser and Fisher, who have always voiced concern of inflation and suggested an earlier rate hike. This however is not news, and Yellen notes that 2 dissents is very natural and is not a sign that normalization will come sooner.
The FOMC statement is very balanced. The market has already been bullish on the USD, and if it is indeed overbought, today’s statement should allow for some consolidation, though we did see some consolidation already in the recent couple of weeks. However the picture of the US Dollar Index in the 4H chart still reflects a bullish market.
(click to enlarge)
1) The rising trendline from August is intact.
2) The 200-, 100-, and 50-period simple moving averages (SMAs) are sloping up and in bullish alignment.
3) Price is above all the SMAs.
4) The 4H RSI is holding above 40, showing maintenance of the bullish momentum.
As Janet Yellen wrapped up her press conference, traders continued to press the gas on USD. We can see the USD Index cracking the 2-week flag pattern. We should be careful with the bullish outlook however, as 84.75 will be the 2013 high. We might want to limit the bullish outlook after a non-hawkish FOMC event, to the 84.75-85.00 area.
At this point, a break below 84.00 will be needed to indicate a possible consolidation against the greenback’s ramp up in recent months.
(click to enlarge)
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