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August 17, 2016 / EURGBP – Daily Bar Timeframe
Sell-Stop Entry: 0.86387
Initial 0% Risk Price: 0.85498
Take Profit Price Area: 0.81888
August 16, 2016 / AUDUSD – Daily Bar Timeframe
Sell-Stop Entry: 0.76442
Initial 0% Risk Price: 0.75257
Take Profit Price Area: 0.73781
September 22, 2016 - Fed Holds Interest Rates - What Now?
Market Update By AvaTrade
Trading the News Profitably
So the FED did what was expected and did not raise the interest rate, although it did hint that it was very possible that we would see a rate hike this year, which would mean most likely in December. The reason for this is that, although the economy is doing well, and inflation is moving slightly up and also employment numbers are strong, they still want to see this continuing and do not want to rock the boat too early. Especially on the employment the FED sees that there is still room to move and thus prefers to keep the interest at the current level.
While the interest rate will most likely go up this year still, the projection for how much the interest rate will be over the longer run has come down, as has the forecast for the growth of the US economy. In addition the amount of expected rate hikes next year has decreased from 3 to 2. For this year it was projected that the FED would raise the interest rate 4 times, but we are left with possibly only 1 hike this year. As a result we see the USD weaken quite a bit, as not only did the FED not raise the interest rate (which was widely expected), but also the projected level of the interest rate, the so called “dot-plot” has come down as well as the projected growth of the economy. This also boosted the equity markets as this means lower rates for longer, even though they might start to move slowly up in December.
One thing which is interesting to note is that the decision to stand down and not raise the interest rate was not unanimous, it also wasn’t last time but then it was only 1 member who was in favor of raising the rates, but 3 members voted to increase the interest rate now, showing there is some split within the FED. Many see the fact that the FED not act as quite strange given the hawkish comments come several FED officials over the last few weeks, most notably FED Chair Yellen herself at the Jackson Hole Symposium and also Stanley Fischer who even hinted that the FED could raise the rate twice this year.
Earlier in the day, the BOJ meanwhile once again mainly under-delivered. Many expected the interest rate to go further down into negative territory as BOJ Kuroda himself also said recently that is a possibility. In addition it did not expand its stimulus, but instead chose to adjust the way it allocates it at the moment to control the bond yields/interest. The BOJ did say that the overall size of its asset buying might fluctuate as it tries to control the yield, it should be still around the current size of 80 trillion Yen.
Does this mean that the BOJ believes it is running out of options as it didn’t move the interest rate and also didn’t expand stimulus? Not per se, as the BOJ is saying that inflation is improving and as such deems it less necessary to talk bold action at the time. We will see if they will act again in November, but as history has shown, something that was very clear in the chart in the article from last week leading up to the central bank decisions, the JPY is gaining strength after each BOJ policy meeting this year.
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