The middle of the week has passed and what a day it was for data and news releases.

Obviously, the FOMC meeting takes centre stage as the markets wait patiently to see if the Fed will cut interest rates as well as offering guidance for any future moves.

But before that, we had ADP Non-Farm employment data which showed gains of 125k for October, marginally better than expected.

Shortly thereafter provisional US GDP data was released for Q3, coming at +1.9% versus a market expectation of +1.6%.

Next up, we had the Bank of Canada interest rate decision and the Monetary Policy Report. They leave interest rates unchanged but cut growth forecasts for 2020 and 2021. USDCAD rallies from 1.3085 to 1.3185.

After the early data releases, the markets descended into slumber to await the Fed.

EURUSD traded at 1.1120, USDJPY 108.90 and GBPUSD 1.2875. XAU would sit at $1,493 and equity markets were all but unchanged in the US.

So, what did they do and what did they say? As expected, they cut interest rates by 0.25%. The wording of the statement changed a little which the market initially interpreted as the Fed pausing cutting rates and will evaluate all incoming data.

Initially, the markets are unmoved, equities turn slightly positive and the USD a spread or 2 higher. Now for the news conference. Chairman Powell notes that risks to the economy have lessened, highlighting positive developments on trade and Brexit.

He reiterates that if need be, the Fed is well-positioned to act and cut rates further. He also highlighted a strong job market and strong consumer spending.

The net result of this is for the USD to rally. USDJPY rises to 109.28 and EURUSD falls to 1.1085. XAU drops as low as $1,482. Equities remain broadly unchanged.

He also suggested that only an increase in inflation would see future rate hikes. Is the normalisation of rates over with? It would seem so. The USD move higher is short-lived.

EURUSD comes back to 1.1150 and USDJPY drops back to 108.75. XAU bounces back to $1,495. A complete reversal of the initial move. Equities finally decide they like what they hear as the DJ rises by over 100 points.

By the end of the day, the USD is marginally off its lows and equities close near their highs, the DJ +115 points. The S&P makes another record close. But the fun isn’t over. Earnings from Facebook, Apple and Starbucks to come. All three come in strong, so potentially a boost to stocks for Thursday.

A volatile afternoon as you would expect. The market perception that a rate hike in the US is only going to come around with a spike in inflation has seen the USD suffer late in the day and has taken EURUSD to 1.1150.

Looking at the hourly chart, strong support now sits ahead of 1.1070 and interim resistance at 1.1180 before strong resistance 1.1250. Keep an eye on these levels over the coming days, especially with US NFP on Friday.

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David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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