VIEW: FOMC and European central bank meetings over the next two days.

Insignia Consultants

New Delhi

Wednesday, June 13, 2018

VIEW: FOMC and European central bank meetings over the next two days.

FOMC meet today is expected to increase interest rates and also give forward guidance on the interest rates for the rest of the year. US economy is strong to withstand two more interest rates hikes after today. Politics will come in way of Federal Reserve in a midterm election year. US nonfarm payrolls continues to average over 160,000 every month. There is lack of specialized labor in certain sectors. There are more jobs than the available labor. Decline in savings rate implies that US economy is moving towards negative savings rate times. The move towards negative savings rate implies higher consumer spending and more available jobs.

European central bank is expected to say that it will move towards interest rate normalization from 2019. European central bank press conferences is full of leaked substances which is interpreted as surprise by retail investor. Interest rate normalization by the ECB has been factored in by the markets. Italy’s political headache can spring a surprise of ECB delaying interest rate normalization. This can result in sinking of euro versus the US dollar. I am expecting some surprise from the ECB.

US dollar will weaken if and only if the FOMC meet suggest one more interest rate hike (after today).  Today’s changes in the forward guidance phrase (if any) will reflect the US dollar policy of the Federal Reserve. I expected the Federal reserve to weaken the US dollar significantly to spruce US exports and also support so called “Trump trade wars”.

Energy prices will not affected by the central bank meetings. They will move on their own. US Bond yields can rise first and then sink. Big moves in metals, energies and US dollar index will happen only if key resistances are broken or key supports are breached. I expected a five percent either side swing in precious metals and US dollar index anytime in the next two days.

Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, crypto currency, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared by Chintan Karnani


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