FOMC will be more careful. Fundamental analysis for 30.03.2016
30.03.2016
The growing uncertainty concerning further actions of the FRS makes the markets even more volatile than they were. Yesterday, while giving a speech at the Economic summit in New York, Janet Yellen actually indicated that there would be no the interest rate increase in April for sure. Moreover, one can see some kind of miscommunication between the members of the FOMC, because earlier some of them hinted at the possibility of the rate increase in April or June.
Let us recall: during the previous meeting, there was a very important change, as it was officially announced that future decisions of the FRS would depend on “expected economic factors”. In other words, from now on, the way the macroeconomic statistics is treated by monetary authorities is more important than the statistics itself. Direct consequence of this “new direction” could be seen yesterday, when the market pressed the panic button after Yellen’s speech.
According to her words, global economic and financial instability is a risk for the American economy and may be the reason to increase the interest rate slower. During its previous meeting, the FRS announced that there would be not four, but two increases of the interest rate this year. Yesterday, Yellen was mum on the particular date, when the rate would be increased next time, but she encouraged the FOMС to act “carefully”.
The main risk for the United States, in Yellen’s words, is the reduction of the expected growth rates of the global economy, slowdown of the economic growth in China, and fall in energy commodities prices. Later, even several jokes appeared that organizers of the summit must have mistaken the nametags and it was the head of the Chinese Central Bank giving a speech but not Yellen, because recently she has talked about problems of the Chinese economy very often and in details.
However, the overall tone of her speech refreshed the markets’ memory that the regulator’s activity this year may be different from its own predictions, and the most that we would be able to see is a single increase of the interest rate by a quarter of point, and even nearer to the autumn. The point is that usually the FRS somehow “prepares the public” to such activity, but right now it’s visa versa – we’ll do everything very carefully and accurately, because “mean risks” are everywhere.
However, if the stock market can breathe freely now, then the situation with currency pairs is much more complicated. The Euro has reached again the top of its trading range and right now is quite unclear if Yellen’s yesterday speech is enough for the Euro to “break through” the current flat. Considering the rumors that the FRS wouldn’t increase the interest rate this year at all, then Yellen’s latest speech may strengthen the markets in this. Although Yellen hasn’t said anything about putting a stop to the rate increase yet, the Euro may continue moving inside the flat until the FRS makes the situation clearer.
RoboForex Analytical Department
Let us recall: during the previous meeting, there was a very important change, as it was officially announced that future decisions of the FRS would depend on “expected economic factors”. In other words, from now on, the way the macroeconomic statistics is treated by monetary authorities is more important than the statistics itself. Direct consequence of this “new direction” could be seen yesterday, when the market pressed the panic button after Yellen’s speech.
According to her words, global economic and financial instability is a risk for the American economy and may be the reason to increase the interest rate slower. During its previous meeting, the FRS announced that there would be not four, but two increases of the interest rate this year. Yesterday, Yellen was mum on the particular date, when the rate would be increased next time, but she encouraged the FOMС to act “carefully”.
The main risk for the United States, in Yellen’s words, is the reduction of the expected growth rates of the global economy, slowdown of the economic growth in China, and fall in energy commodities prices. Later, even several jokes appeared that organizers of the summit must have mistaken the nametags and it was the head of the Chinese Central Bank giving a speech but not Yellen, because recently she has talked about problems of the Chinese economy very often and in details.
However, the overall tone of her speech refreshed the markets’ memory that the regulator’s activity this year may be different from its own predictions, and the most that we would be able to see is a single increase of the interest rate by a quarter of point, and even nearer to the autumn. The point is that usually the FRS somehow “prepares the public” to such activity, but right now it’s visa versa – we’ll do everything very carefully and accurately, because “mean risks” are everywhere.
However, if the stock market can breathe freely now, then the situation with currency pairs is much more complicated. The Euro has reached again the top of its trading range and right now is quite unclear if Yellen’s yesterday speech is enough for the Euro to “break through” the current flat. Considering the rumors that the FRS wouldn’t increase the interest rate this year at all, then Yellen’s latest speech may strengthen the markets in this. Although Yellen hasn’t said anything about putting a stop to the rate increase yet, the Euro may continue moving inside the flat until the FRS makes the situation clearer.
RoboForex Analytical Department
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.