Stocks Dip, U.S. Dollar Aims for the Moon
eToro | Dec 16, 2016 05:19
Today's Highlights
What the FOMC?!
Stocks Dip - US Dollar Aims for the Moon
Two More Interest Rate Events Today
Please note: All data, figures & graphs are valid as of December 15th. All trading carries risk. Only risk capital you're prepared to lose.
What just happened?
As was widely expected by just about everybody, the US Federal Open Market Committee raised the Federal Funds Rate by a quarter point from 0.50% to 0.75%. In addition, and perhaps more importantly, the Fed got very aggressive and projected many more rate rises for 2017.
Simple math: Three more quarter point rises would take us to 1.50% by next December.
The Fed were kind enough to provide us with the following projection. They call it a dot plot, where each Fed member places a dot where they think rates will be in the future. For the clearest idea simply look at the green line, which is the median of all the dots for the end of each year.
Even though 3 rate hikes for '17 is much more aggressive than some analysts were expecting, it is still much slower than the Fed themselves were thinking a year ago.
Luckily we can see what they were thinking then in their dot plot from a year ago...
As we can see, the Fed is now predicting that we will reach the point that they were previously expecting to be at now by the end of next year.
Market Overview
The market reacted strongly to the Fed's aggression fighting fire with fireworks.
Global Stock Indices lost ground due to tighter money policy. However, the losses were fairly contained. European and US stocks are down less than 1%.
So far today the Nikkei 225 after a few swings is currently flat, but the China 50 is down by 2.17%.
Commodities like gold, silver, copper, and crude are all down due to the...
Super Strong Dollar
The surge in the US dollar is one of the defining moves of this quarter. Last night was no exception. In fact, last night we saw some of the most jaw-droppingly awesome moves yet.
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First, the EUR/USD breached it's red line. We've been talking about the 1.0500 level (yellow line) increasingly since before the Italian Referendum (white circle).... and there it went.
At the moment, we've managed to bounce off the white line at 1.0460, which is the all time lowest level for this pair, reached in March 2015.
The other major milestone for the US dollar was against the yen, which continued its devaluation in a major way blowing through the 116 handle and now meeting resistance just shy of 118.
To put this into context, let's zoom out on the USD/JPY to 2015 when it was trading between 115 and 125 for the entire year.
After a brief downturn and serious test of 100 yen to the dollar (colored circles) we're right back in that old familiar range.
More action today!!
Today we'll get interest rate decisions from both the Swiss National Bank and the Bank of England. The FOMC yesterday is going to be a very tough act to follow.
Draghi said it best, the deflation era is over. Now that the Fed has tightened, it's going to open the door for other central banks to follow and start raising rates.
The Swiss are currently deep into negative rates at -0.75%. Economists are not expecting any changes to the rates today, but the SNB has been known to surprise the markets from time to time *cough* Francogeddon *cough*.
The Bank of England is a much more stable ship, and with Captain Mark Carney at the helm is far less likely to steer towards any type of surprise. However, with inflationary concerns on the horizon even a subtle hint that we're headed towards a rate rise could calm the waters a bit.
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