New direction of the Federal Reserve. Fundamental analysis for 21.03.2016

Last week, the FRS decided to not keep out of popular monetary tendencies and, quite unexpectedly, gave all participants of financial markets some “food for thought”.  The point is that earlier everyone thought that Janet Yellen’s department set a course for the rate increase, the question was how fast it is going to move in this direction. But after Yellen’s comments during her press conference it was clear that the Federal Reserve, if necessary, was ready to decrease the rates and there was no way to increase them so far.

Well, if there was any predictability in the monetary policy, which was the goal for the FRS for the entire year, now it all “went down in flames”. Moreover, if earlier the regulator connected its further actions to some macroeconomic data, something like labour market parameters or the inflation rate, now it’s becoming “a lot funnier”, because now future decisions of the FRS depend on “expected economic factors”. Tableau.

We already saw something like this when Ben Bernanke was the head of the FRS. The statistics almost reached its target numbers and the time came to close the QE program, the regulator intrigued the public with its hesitations about stability of achieved results for another half a year, and almost fell out of the “window” of opportunities to close the program. Something like that may happen this time as well, because Yellen didn’t decide to “carry out the full cycle” of the rates increase, and right now is standing a very good chance to encounter a new wave of economic problems, which will simply not allow her to increase the rate further.

At the same time, the FRS updated its economic forecasts, reducing possible rates increases this year from four to two. In fact, this very decision was expected by the markets. Moreover, the whole picture is quite counterintuitive, because at the beginning of the year some people even thought that there might be no rates increase at all because of the strong easing policy of the ECB and the BoJ, which managed to decrease their rates over the last month. And right now, the FRS is telling us that it might increase the rates after all, but the way it is telling this prevents the US Dollar from any strengthening at all.

Besides, if earlier the position of the FRS in this sophisticated worldwide monetary equation was clear more or less, then now it’s become much more complicated. The inflow of macroeconomic statistics is no longer considered as a guide for the regulator’s further actions. So it happens, that (in fact - involuntarily) the regulator leaves itself a very essential room for maneuver, but at the same time increases risks, because its actions make the global uncertainty even bigger.




As we can see at the chart, the ascending movement caused by an unexpected reverse of the FRS has almost exhausted. Probably, in the future the price may continue consolidating within the borders of the flat. Taking into account that right now the price is moving close to the pattern’s upper border, the Eurodollar is expected to fall a bit at least, but it’s too early to tell that the price either resumes the downtrend or completes it.
 
RoboForex Analytical Department