Fed Meeting Preview
I agree with consensus that there will be no policy changes in terms of rates and QE at today’s FOMC meeting. The Fed will instead opt for the status quo via an auto-pilot approach. The main focus point will be any chatter about tapering which should be quashed by Jerome Powell as the taper tantrum of 2013 sends shivers down any Fed Chairman’s spine. Although, some regional presidents could be described as taking a slightly more hawkish tilt with their rhetoric on timelines surrounding tapering, the core of the FOMC remains dovish. “Now is not the time” were the words recently used by Jerome Powell and this actually makes sense. Yes, the economy with the vaccine rollout and sizable stimulus has an optimistic outlook over the medium-long term, however, in the present and near-term there are uncertainties such as mutations or delays in the deployment of the stimulus which prevents the Fed from removing the punch bowl just yet. Jerome Powell will stress that the Fed stands ready to provide additional support to the economy. The Fed are now taking an outcome-based approach, meaning they will be reactive as opposed to proactive in their policy changes. The recent rise in the back end of the curve is likely to cause little concern as they have come about for the ‘right’ reasons – namely reflation being priced back into the market due to a more positive economic outlook. One other interesting area where Powell may have to field some questions is on the topic of financial-stability concerns amid the speculative emotions we’ve seen unfold over the last few days in shares like Gamestop and Blackberry. My colleague, Christ Weston wrote a great piece explaining the incredible price moves of Gamestop here. On the topic of shares we also see Apple, Tesla and Facebook reporting their results tonight. Click on Tesla and Apple to see further analysis for those shares. Clients can trade these popular shares here
DXY could have an inverted head and shoulders pattern forming here, indicated by the purple shaded circles. Neckline is at 90.7 and head is at 89.5 - if price was to break the neckline the projected move would be up to 91.9. Lots of resistance at 92 level from the August - November months. However, there’s plenty of resistance to be cleared before those levels can be reached in the form of the downtrend line, 21-day EMA (pink line), upper band of Bollinger bands, 50-day SMA (light blue line). Currently, the 21-day EMA has been breached and price is pushing up against the downtrend line and 50-day SMA. There's two ways to view the dollar at the moment - either you're bearish and you see a bear flag pattern or bullish and see an inverted head and shoulders precipitating a higher move. Could tonight's Fed meeting cause some excitement?