Fed throws out calendar, Dax buyers throw out EUR hedge
City Index April 30, 2015 2:18 AM
<p>The FOMC statement accomplished the feat of being simultaneously dovish in its recognition of winter time slowdown, while boosting the US dollar by relegating its […]</p>
The FOMC statement accomplished the feat of being simultaneously dovish in its recognition of winter time slowdown, while boosting the US dollar by relegating its calendar guidance in favour of data-dependence. The US dollar rallied against all major currencies immediately after the Fed statement, but ended nearly 2 cents lower against EUR, GBP and AUD.
Throwing out the calendar
The main source of the USD rebound in the FOMC statement emerged from the removal of calendar reference, by omitting the phrase: “…the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting.”
The elimination of time-specific guidance highlights the Fed’s dependence on the data to the extent that it places the timing of interest rate lift-off at equal footing among the next 2-3 scheduled meetings.
Said differently, an early rate hike (June) would be viable if both of the upcoming jobs reports (April due next week and May due in early June) come up unambiguously strong i.e. above 200K NFPs and strong average hourly earnings.
The message of the Fed so far holds that a September Fed hike is the most probable outcome, while the probability for a June hike is technical possible but not viable.
The FOMC’s mention of winter slowdown and “transitory factors” was in part aimed to attribute the dismal 0.2% growth in Q1 to inclement and weather in the North East and strikes in the West Coast.
Euro rally not over
The other main story of the day is the 378-point collapse of Germany’s DAX-30 index—a 3.21% drop, the biggest in a single day since the eruption of the Spanish/Italian debt crisis in June 2012. The selloff was intensified by asset managers existing from DAX-30, Eurostoxx-50 and other Eurozone equities, which were accumulated since November –coinciding with the ECB’s QE becoming certainty. As asset managers closed out of their Eurozone stocks, so did the hedging arrangements against EUR weakness. The result was a violent decline. As speculators pile on the shorts, the 8% decline in the Dax could well become 12% as technical chase up the 100-DMA. As the shorts rush in, EURUSD bulls could see their own 100-DMA materialize at 1.1300.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.