MARKET BRIEFING – LONDON OPEN 28.10.2015
According to latest estimates, there is only a 4% chance that the United States Federal Reserve will increase interest rates this evening.
The market also sees a low likelihood that an increase in the Federal Funds rate will happen in December with this scenario priced into expectations by 25%.
The chances of a March hike increases notably with the market pricing in this expectation by 50%.
With the market making its own mind on the timing of the first interest-rate increase and if we discount anything happening today, it is, therefore, important to take a close look at the language of the report. Especially as we have been receiving conflicting messages from the FOMC with some Governors wanting to see a rate increase to happen this year and others want it to happen in 2016.
The Federal Reserve has what is known as a dual-mandate which is to look after interest rates and employment.
However over recent times the FOMC has begun to take into account issues that are external to the US economy. This can now be considered as the third mandate.
The question vexing many market analysts and no doubt the decision makers on the FOMC is should the Federal Reserve just stick to its dual mandates or is it right to look at the external factors?
In this modern, interconnected global economy, the FOMC has no choice but to take into external factors when it considers its monetary policy.
Furthermore, it is fairly obvious that all central banks are now actively briefing one another and where possible planning together so as to solve the problems facing the global economy.
The FOMC is obviously treading very carefully as it plans its next move with China, the Emerging Markets and Europe being of high consideration.
China for the past two decades has seen its economy expand at a phenomenal pace. However during 2015 the Chinese economy has grown at its slowest pace in 25 years.
The Chinese Government and Central Bank have taken steps to cushion the country’s economy from the first major contraction since the open door policy was brought into being.
The steps taken include a devaluation of this country’s currency and a cut in the rate of interest by 25 bp.
Europe is also high in the FOMC’s thinking. The European Central Bank President Mr. Mario Draghi has said that the ECB’s QE programme could be extended.
We now have a scenario of China / EU easing happening at a time when US rates will increase. The fallout from this is a strengthening US Dollar and its negatives implication for US competitiveness on the global markets.
Back to the dual mandate, the US economy and the employment outlook. The jobless numbers calculated on a three-month average have been good but not impressive.
There are two more payroll numbers to be released before the meeting in December together with inflation and manufacturing data.
The Federal Reserve, therefore, does have some time to look at the incoming data. The two most recent job numbers were below expectation. However, the FOMC could be tempted to act if it sees the next two NFP releases reach levels above 200,000.
Some would say that the FOMC has been overly cautious as it waits for all the boxes to be ticked before it moves ahead and tightens its monetary stance by increasing interest rates.
The problem for Chairwoman Janet Yellen and her colleagues on the committee is that whatever they do would is bound to displease someone.
EURUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.1130
Target 2: 1.0950
Projected range in ATR’s: 0.0089
Daily control level: 1.1080
GBPUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.5400
Target 2: 1.5205
Projected range in ATR’s: 0.0098
Daily control level: 1.5380
USDJPY
The intraday technical outlook
Trend 1 hour: Down
Target 1: 121.00
Target 2: 119.70
Projected range in ATR’s: 0.74
Daily control level: 121.00
USDCHF
The intraday technical outlook
Trend 1 hour: Up
Target 1: 0.9940
Target 2: 0.9785
Projected range in ATR’s: 0.0077
Daily control level: 0.9800
USDCAD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.3375
Target 2: 1.3155
Projected range in ATR’s: 0.0110
Daily control level: 1.3120
AUDUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 0.7280
Target 2: 0.7115
Projected range in ATR’s: 0.0085
Daily control level: 0.7255
GOLD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1180.00
Target 2: 1152.00
Projected range in ATR’s: 14.08
Daily control level: 1160.60
OIL
The intraday technical outlook
Trend 1 hour: Down
Target 1: 45.00
Target 2: 42.00
Projected range in ATR’s: 1.44
Daily control level: 45.20
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