Traders will watch with extreme interest this coming Wednesday’s events as the GDP (Gross Domestic Product) and FOMC (Federal Open Market Committee) statement are going to be released at a distance of around five hours.
Volatility will rise dramatically especially if the GDP will print better than expectations.
There is no surprise anymore that the Federal Reserve in the United States is preparing to raise the federal fund rates this year and they announced that for quite some time now. When a central bank spends that amount of time and energy to communicate the next move, then rarely market will be disappointed. Therefore, expect the rate to come, but the big question is when.
The Federal Reserve in the United States has a dual mandate: to keep inflation below or close to two percent, and to create jobs. The second part of the mandate is almost completed in the sense that while the United States is far from full employment, the recent data suggests things are going in the right direction.
More problematic is the inflation subject as no one really understands why there is no inflation after such a long period of money printing and quantitative easing programs. The recent release showed an increase in the core cpi (consumer price index) but that is far away from the Fed target.
After the GDP release on Wednesday, in a matter of hours later, the FOMC statement will be published.
The last statement showed the Fed dropping the word “patient” but the reaction was that the US dollar has been sold aggressively.
This time the focus will be on the eventual dropping of the “considerable time” words. If the FOMC statement is not having those words in it, it means Fed is not keeping the rates lower for a considerable amount of time anymore and this should translate into a clear signal that the June meeting will have a rate hike.
After all, Mrs. Yellen did say that until June there will be no hike, so clearly this Wednesday there will be no surprises. But the dropping of these two words will be the equivalent of a rate hike and the GDP earlier that day may give us a hint on what the Fed will do.
I am still bullish on USDJPY and USDCAD and looking for 123 and 1.2150 respectively to be hit sooner rather than later.
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