Fed Causes Rate Volatility


And now we go into the opposite direction.

Last night, Fed continued to spin its merry-go-round, and Governor Lael Brainard was chiming in to defend her position to try and keep rates on hold.

“The case to tighten policy pre-emptively is less compelling.”

Brainard’s point revolved around that while the labor market was strengthening, the falling 4.9% unemployment rate had still failed to spur inflation and therefore urged “prudence in the removal of policy accommodation.”

Yes, basically the polar opposite of what we got yesterday… Modern markets at their finest and a day to day V shape on the charts!

S&P 500 4 hours

S&P 500 4 hours

Price has paused at previous support turning possible resistance at the first re-test, but I just can’t see it holding. All things being equal, the ‘Boston Fed President Eric Rosengren drop‘ (as we’ll call it I suppose), should simply be retraced and ignored like nothing ever happened.

One recent example of this type of thing happened when Kuroda and the BoJ talked up the prospect of impending helicopter money. This of course sent USD/JPY on a 600 pip round turn as expectations weren’t met and we ended up exactly back where we were before the market tried to price it in.

Now with the above Fed position seeming to be the one featuring the most common sense, does this mean that some USD short trades could be on the cards? The hawks got excited in the lead up to Jackson Hole, but price was unable to pierce any meaningful resistance levels. A telling bearish sign as the fundamentals start to swing back the other way and near term rate hikes are being priced out again.

EUR/USD daily

EUR/USD daily

EUR/USD is moving up inside a bullish channel and has most recently re-tested short term resistance turned support.

A nice level to keep marked if you’re looking for longs on the pair.

USD/JPY daily

USD/JPY daily

Likewise on USD/JPY, we have a higher time frame bearish channel with price at resistance. If price rolls over here, new lows are certainly opened up if the Fed doesn’t move.

Happy trading!

This Tuesday

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EUR German ZEW Economic Sentiment

This is a guest post originally appeared on Vantage FX. Reposted with permission.

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