Today, the U.S Federal Reserve will announce the rates with high expectations for a no change and will maintain at current 1.25%. Along with it, FOMC economic projections, a statement, and finally a press conference which will create chaos in the market depending on the content of the answers. In case Yellen has the intention and was serious by gearing up the market, then expect intended hints because Yellen usually delivers vague speeches, leaving market confused. FOMC will focus on two elements, December odds rates and more importantly, current QE program and the edition that will undergo.
First regarding rates, it is highly expected that Yellen & Co will leave rates at current 1.25% especially that last PPI was projected at 0.3% and the Producer Price Index slipped by 0.1% and recorded 0.2%, while consesus aimed at 0.3% . On the other hand, Inflation last recorded in August was 1.9%, still below 2% as a central bank aims. Come to Core Retail Sales last week, a disappointing data with -0.2%, falling from 0.4% last shown, while expectations were at 0.5%. Last but not least, PCE, Fed's preferred measure added no change at 0.1%. Adding all these elements, increasing rates will be postponed for another session, and as Yellen previously expressed, any increase for current rates will depend on how market is performing and recorded data
Enough said, market already knows the above and there is no doubt about it. The real question will be, is end of 2017's rates December is still on the table? In case yes, what are the odds for that (currently below 50%). Any hints that rates odds has increased, and the Feds are serious expressing concerns that inflation has increased by 0.3% since last recorded 0.1%, and its meeting their projections, and its being intolerant, this to be taken hawkish and will boost the buck. On the other hand, a dovish scenario will be that inflation is still below 2%, and any rate decision will be subject to further coming data.
Second, Now this part has been covered, we come to the balance sheet that Yellen promised in last FOMC meeting relatively soon. Market is expecting date and numbers, any failure to deliver on this part, the DXY will take a dip. In case an announcement came out that starting by October and December trimming the balance sheet by $10 billion a month for the first three months, $20 billion per month for the next three, and on and on until it hits a pace of $50 billion per month. This will create a high demand of the U.S Dollar and Index will peek (Hawkish Scenario). In case dates were set without numbers given, this will be left for the market and how they feel about it as its considered neutral. Just a reminder that during last Jackson hole meeting, Yellen has announced that the QE ( Quantitative Easing Program or Bond Purchasing ) has been introduced after 2008's crisis and has kept global monetary policy system safe and its still exist for a reason. One can only wonder how far will Yellen go giving up such a measure especially that Trump is in the oval office.
Finally, recent FOMC members who crossed wires during Sep has expressed a hawkish tone towards rates especially on Dec, we will see how far their statement is serious tonight. On the other hand, it is highly expected that Yellen will end its term as head of U.S Federal reserve during 2018 and be replaced by Cohn, Trump's favorite as they both prefer low rates.Trump has already expressed that previously and hinted for Yellen his desire for low U.S dollar which has kept the greenback from seeing the light, if not intentionally, then by his demand for building the wall, elevating the sharp war tone on NK, delay on tax plan, health care bill, last but not least, his twitters, always tackling the Dollar, and so on.
There is a scenario that Yellen, and out of her concern for U.S monetary policy could take market off guard by a rate increase, if not today, maybe during December even if expectations hints for a no. In case of that, market will be caught off guard and U.S Index will be rallying with fire and fury just like BOC did last meeting where they hiked.
After expressing the above fundamentals, here is technical overview for CFD's including currencies, commodities, and indices to have an idea where and will market will head. CFD's Technical Overview https://goo.gl/mQnHHQ