Trader’s Focus Beyond FOMC While Greece Look Towards Russia

A typical FOMC evening is over and now trades are looking beyond this evening, but will closely monitor all the factors which Miss Yellen mentioned yesterday. She has confirmed that two rate hikes will be taking place this year so, in brief, she has given a clear signal that if you are thinking that loose tightening cannot place, it will. Nevertheless, if there are two rate hikes during this year, can we really say that it is loose tightening? Perhaps, no, but yes also. The reason being is the time horizon and it depends from which time frame you are looking at.

Some may say that seven years is a long time to keep the interest rates this low so if you are looking from that perspective, then surely yes, it is still the most loose tightening taking place ever. However, if you look when the Fed finished their QE program and count the days of a rate hike, then surely it does not appear to be that loose tightening. Let’s not forget another factor, which is the strength of the dollar, because with Fed increasing the interest rates, it will push the dollar even more higher and that itself is equivalent of 20 basis points itself. The big bull run which we experienced in the U.S. Dollar so far has been only on the back of the optimism that the Fed will be raising the rates soon and when this process actually takes place, the situation could be completely different.

Another important factor which traders will keep their focus on will be the growth forecast, because last night was like a competition of slashing the growth forecast between the IMF, OECD and the Fed. The Fed has taken the lead in this because their growth forecast cut was the sharpest. They lowered their forecast to 2% for 2015. This will keep the traders very much focused on the economic data point and they will pay full attention to each and every single economic headline. The reason is that it is difficult to justify a rate hike when you have lowered the growth forecast, but given that the Fed did not change their inflation forecast, perhaps this gives them a little breathing room when the time will question their this decision.

Back to the Greek saga, the ECB has increased the ELA for Greece to 84.1 billion euro yesterday and left the haircut level unchanged despite the continuous evaporation of bank deposit. Public is anxious that capital control will be announced and they are parking their money somewhere more safe before this announcement prints. While there is no hope insight to reach any deal today, which was another deadline of hope, Mr Tsipras is flying to Russia for their plan B or perhaps another game theory tactic which may bring some elastic approach from their lenders.

Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.

by Naeem Aslam