Henry Liu
Former FPA Special Consultant
- Messages
- 473
The FOMC will be releasing a statement regarding future monetary direction along with the Federal Funds Rate decision, which is expected to be kept at the current level of 0.25%.
Historical chart and data on FOMC Meeting Statement.
The focus of the market in the past few weeks has been on the speculation of further monetary easing by the Feds in the form of expanding its balance sheet by introducing another Quantitative Easing measure, or QE II (II being the second one).
The very fact that U.S. economy still needs this additional measure has driven the USD lowest in recent weeks, pushing the EURUSD above the 1.3100 level, breaking above the resistance at 1.2900. This meeting is likely to either add more momentum to EURUSD and push it towards the 1.3300, or we may see a reversal in the market and 1.2800 may be tested in the next few weeks...
The key focus is on the famous FOMC Statement... And here are some scenarios that could take place:
Of course, market may ultimately do what it wants to do as there are institutions waiting on the FOMC Statement before jumping in the market, and those order flows may skew the general sentiment temporarily, but market should move in the direction of the statement gradually and steadily until the next high impact data changes the sentiment.
Here are some of the Q&A by Bloomberg to 64 Analysts:
1. At the FOMC’s Sept. 21 meeting, will the committee decide to (choose one):
a) Retain the current policy of keeping a constant level of the Fed’s securities holdings by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities
b) Increase the level of securities holdings through an accelerated pace of asset purchases
c) take a different action on the balance sheet. Please be specific.
Result (64 replies): A, 60; B, 3; C, 1.
2. Will the FOMC statement following the Sept. 21 meeting include any changes to the following sentence: “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Yes or no.
Result (63 replies): Yes, 9; 54, no.
3. Will the Fed decide at the Sept. 21 meeting to reduce the 0.25 percent interest rate on excess reserves? Yes or no.
Result (63 replies): Yes, 4; 59, no.
Most analysts believe that the Feds will keep rates the same, keep the extended period phrase, and keep the current balance sheet unchanged... This should result in a consolidation of recent gains in CHF, EUR, AUD, and push USDJPY above the 87.50 level...
Thanks,
Historical chart and data on FOMC Meeting Statement.
The focus of the market in the past few weeks has been on the speculation of further monetary easing by the Feds in the form of expanding its balance sheet by introducing another Quantitative Easing measure, or QE II (II being the second one).
The very fact that U.S. economy still needs this additional measure has driven the USD lowest in recent weeks, pushing the EURUSD above the 1.3100 level, breaking above the resistance at 1.2900. This meeting is likely to either add more momentum to EURUSD and push it towards the 1.3300, or we may see a reversal in the market and 1.2800 may be tested in the next few weeks...
The key focus is on the famous FOMC Statement... And here are some scenarios that could take place:
- FOMC keeps rates unchanged, keeps the statement "extended period" - Market should react favorably for the USD.
- FOMC keeps rates unchanged, drops the statement "extended period" - Market will react violently towards buying USD as this signals possible rate hike... a complete 180 degrees change in direction from recent speculation.
- FOMC keeps rates unchange, keeps the statement "extended period", and increase the balance sheet by large scale asset purchases from 600 Billion to 1 Trillion - Market will sell off USD, we should BUY EURUSD, GBPUSD, etc... Broad market weakness in the USD.
- FOMC keeps rates unchanged, keeps the statement "extended period", and increases current balance sheet to 100 ~300 Billion - Market should remain slightly bearish for the USD... but remember the past few weeks USD has been heavily devalued from speculation of a 1 Trillion dollar asset purchase, we may actually see some "buy on rumor, sell on news" reaction as traders buy USD back.
- FOMC keeps rates unchanged, keeps the statement "extended period", and announces that it's evaluating the potential of buying more assets - Market will be confused, but should be somewhat positive for the USD as anything short of a straight out large scale purchase, USD should remain strong.
Of course, market may ultimately do what it wants to do as there are institutions waiting on the FOMC Statement before jumping in the market, and those order flows may skew the general sentiment temporarily, but market should move in the direction of the statement gradually and steadily until the next high impact data changes the sentiment.
Here are some of the Q&A by Bloomberg to 64 Analysts:
1. At the FOMC’s Sept. 21 meeting, will the committee decide to (choose one):
a) Retain the current policy of keeping a constant level of the Fed’s securities holdings by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities
b) Increase the level of securities holdings through an accelerated pace of asset purchases
c) take a different action on the balance sheet. Please be specific.
Result (64 replies): A, 60; B, 3; C, 1.
2. Will the FOMC statement following the Sept. 21 meeting include any changes to the following sentence: “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Yes or no.
Result (63 replies): Yes, 9; 54, no.
3. Will the Fed decide at the Sept. 21 meeting to reduce the 0.25 percent interest rate on excess reserves? Yes or no.
Result (63 replies): Yes, 4; 59, no.
Most analysts believe that the Feds will keep rates the same, keep the extended period phrase, and keep the current balance sheet unchanged... This should result in a consolidation of recent gains in CHF, EUR, AUD, and push USDJPY above the 87.50 level...
Thanks,
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