MARKET BRIEFING – LONDON OPEN 27.01.2016
It is believed that the United States economy is in a process of recuperating and heading to a growth phase. Inflation according to the Federal Reserve is most likely to increase during the coming year. Or at least, deflationary pressures will wane as wage inflation begins to finally kick in and catch up with what have been encouraging employment numbers.
Also, it could be assumed that Oil prices are close to bottoming out and this could begin to stimulate demand as businesses and the consumer takes advantage of cheap petroleum.
This could eventually lead to the supply gap being finally closed and therefore, feed into the FOMC’s requirement which sees inflation approaching the 2% target and, in turn, see growth pick up.
The head of the Federal Reserve, Janet Yellen will still be concerned that incoming data will derail her plans that according to the dot plot will lead to four interest rate hikes in 2016.
Yesterday Yellen received some good news with the Conference board publishing encourage Consumer Confidence data. There will be a further indication of the state of the US economy when on Friday when the US Bureau of Economic Analysis will publish the latest quarter on quarter GDP data.
In light of the mixed data and with a market that simply does not believe the Federal Reserve will stick to its planned path for interest rates for the remainder of the year the issue of how Janet Yellen delivers the message becomes of paramount importance.
The form is not good for the FOMC. Only back in September 2015, the Federal Reserve missed an opportunity to increase interest rates when the market expected this to happen.
The overly dovish sentiment that Janet Yellen gave had the markets reappraising the state of the US economic outlook. The FOMC’s action caused a crisis of confidence amongst market participants.
The FOMC wants to avoid what happen last autumn as any signs of weakness or regret would be interpreted that the Feds Fund rate increase in December may have been a mistake.
Sticking to their guns and being committed to a view that their decision making is correct should be applauded, however, the jury is still out on the Federal Reserve’s handling of the great recession of 2008 and the fallout and effects that followed.
Just like the Reserve Bank of New Zealand, the Federal Reserve could have got their timing wrong and may need to give themselves some room for flexibility.
Being wedded to a policy, come what may of 4 rate increases during 2016 could look very foolish if this leads to the US economy being dragged back down into a painful recession.
The FOMC is hoping that the forthcoming data begins to stack up and is in line with their future dot plot for interest rates. However, it would seem prudent for the FOMC to make the market aware that there is room to manoeuvre if the carefully laid plans are derailed by the economic realities.
EURUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.0951
Target 2: 1.0768
Projected range in ATR’s: 0.0091
Daily control level: 1.0875
GBPUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.4465
Target 2: 1.4212
Projected range in ATR’s: 0.0132
Daily control level: 1.4170
USDJPY
The intraday technical outlook
Trend 1 hour: Up
Target 1: 119.21
Target 2: 117.30
Projected range in ATR’s: 1.10
Daily control level: 117.60
USDCHF
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.0252
Target 2: 1.1008
Projected range in ATR’s: 0.0087
Daily control level: 1.0115
USDCAD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.4262
Target 2: 1.3957
Projected range in ATR’s: 0.0171
Daily control level: 1.4335
AUDUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 0.7097
Target 2: 0.6944
Projected range in ATR’s: 0.0103
Daily control level: 0.6915
GOLD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1133.00
Target 2: 1106.00
Projected range in ATR’s: 14.66
Daily control level: 1109.00
OIL
The intraday technical outlook
Trend 1 hour: Up
Target 1: 32.49
Target 2: 29.01
Projected range in ATR’s: 2.09
Daily control level: 29.15
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