Surprising optimism of the Federal Open Market Committee….Rate dynamics and recommendations on USD-CHF and USD-CAD. by OpenForex.com

Surprising optimism of the Federal Open Market Committee….Rate dynamics and recommendations on USD-CHF and USD-CAD.

06:58 08/11/2004

Surprising optimism of the Federal Open Market Committee….Rate dynamics and recommendations on USD-CHF and USD-CAD. Yesterday, the Federal Open Market Committee members made a decision to raise its target for the federal funds rate by 25 basis points to 1-1/2 percent. However, investors were surprised not at the decision itself (as it was expected by the majority of economists) but at the fact that the statements made by the FRS officials following the meeting proved to be more optimistic than expected. The key question for the market is the probability of further rate hikes that the FRS might or might not carry out this year. As Friday data was disappointing, the majority of economists think yesterday rate hike was the last this year. The final communiqué says that weakness of recent economic data was temporary and owed to transitory factors. That gives reasons to suppose the FRS would raise rate target by 0,25% again at September, 21 meeting. So, despite recent disappointment caused by Labor market data, the Federal government thinks current state to be temporary and connected to transitory factors. The Committee points at the fact that “ the economy nevertheless appears poised to resume a stronger pace of expansion going forward…The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability». Now, economists assume that economic data, reflecting labor market situation particularly, will affect decision to raise the rates. In fact, optimistic tone of the final communiqué presupposes continuation of rate hike cycle this year. Recommendations: summing up all of the above said and despite optimistic final communiqué, we recommend keeping yesterday strategic shorts on USD-CHF that were opened from 1,2529. However, the probability of further rise of the rate to 1,2725 seems to be rather high, that is why those, who posses small deposits, should secure themselves by arranging protective stop at 1,2645. Strategic players are recommended to open/add on the possible rise from 1,2680. The optimum stop level here will be 1,2800. USD-CAD stopped at the level that was indicated yesterday (1,3230), overcoming that level would give way to the key resistance at 1,3350. However, that will depend on economic data, which will soon be released. Pay special attention to employment situation. Jobless claims in the U.S. that are scheduled for tomorrow will be of a special interest in this case. In a whole, USD-CAD is right in the middle of the market corridor, which means that opening new position might result in various “bends”. Those, who opened short positions on the dollar yesterday, should wait for the latest news and stay out of the market. Recommendations: summing up all of the above said and despite optimistic final communiqu?, we recommend keeping yesterday strategic shorts on USD-CHF that were opened from 1,2529. However, the probability of further rise of the rate to 1,2725 seems to be rather high, that is why those, who posses small deposits, should secure themselves by arranging protective stop at 1,2645. Strategic players are recommended to open/add on the possible rise from 1,2680. The optimum stop level here will be 1,2800. USD-CAD stopped at the level that was indicated yesterday (1,3230), overcoming that level would give way to the key resistance at 1,3350. However, that will depend on economic data, which will soon be released. Pay special attention to employment situation. Jobless claims in the U.S. that are scheduled for tomorrow will be of a special interest in this case. In a whole, USD-CAD is right in the middle of the market corridor, which means that opening new position might result in various “bends”. Those, who opened short positions on the dollar yesterday, should wait for the latest news and stay out of the market.

The forecast was created by trans1.