Fed Hawks; Stocks Climb Against A Weak Dollar
eToro | Feb 16, 2017 10:18
Today's Highlights
Fed Hawks
Stocks Climb against a weak dollar
ECB Summary
Please note: All data, figures & graphs below are valid as of February 16th. All trading carries risk. Only risk capital you're prepared to lose.
What the Fed Said
Janet Yellen had an interesting day in Washington, to say the least.
One of the main points discussed in the US Senate yesterday was the issue of deregulation and Trump's stated agenda to repeal the Dodd-Frank act that was set in place to regulate Wall Street in the wake of the 2008 crisis.
Many Senators, especially democrats, used their time with Janet Yellen to highlight how useful the act is and how it's the only thing preventing another crisis. They were, of course, preaching to the choir. Yellen is in staunch favour of Wall Street regulation and she's stated so on several occasions.
More importantly, Yellen surprised economists by saying that she will not be responding directly to the policies set by Trump and offsetting tax cuts with rate hikes. Rather, the Fed will only respond to said policies if they feel that it will affect the inflation outlook.
Meaning, they're not going to react to Trump, they're going to react to what the effect he has. Personally, I fail to see the difference. Welcome to politics.
Janet and her hawkish pals did manage to do one thing really well, they put March on the table.
By reiterating the plan of three hikes this year and by stating that it's better to raise the rates sooner rather than later, the market expectations of a rate hike in March now stands at 44%.
In order to pull off a comfortable rate hike, they'll need to get that number up to about 70% by March 15th. We'll be watching it very carefully.
So how does this affect our traders
The stock markets simply could not be happier. Those trading individual stocks in eToro are seeing nothing but gains.
Meanwhile, those who are shorting the stock indices are questioning their conviction but are largely holding firm on their positions.
The sentiment of the S&P500 stands at 83% selling, down from 86% in January. The community still largely expects to see some kind of pullback after the stock market sees its biggest winning streak since 2013 .
Oddly enough, even though Yellen and the other Fed members came out very hawkish and the markets are now pricing in a quicker pace of interest rate rises, the US dollar is actually falling this morning.
The Buck got a huge boost when inflation data from the US was published better than expected (circled in the chart below), but the move was reversed quite quickly. As the Fed members spoke, the dollar kept sinking despite the hawkish tone of the Fed. Very strange indeed.
Get The App
What's next??
The economic calendar is actually pretty quiet today. The main event is coming at 12:30 GMT when the European Central Bank will publish the meeting minutes from their last interest rate decision.
You'll recall that the ECB's meeting on January 19th was fairly lukewarm and uneventful the day before Trump's inauguration. Today's minutes will give us some insight into what they were actually thinking under the surface.
The ECB is currently one of the most aggressive central banks in the world, with a QE program of €80 billion. Though the program will be reduced to €60 billion in March, they do run the risk of marching right off the table.
Meaning, if they keep on with their aggressive loose money program while the rest of the world is tightening the belt, the euro could very well fall off a cliff.
The EUR/USD did manage to rebound off of the lows yesterday against the weaker Dollar. Today it will be very much in focus.
Disclaimer: This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.