The FOMC meeting concluded today with Chairman Powell’s press conference. Listening to Chairman Powell’s views, we think we are on the path we have been laying out since February, i.e., that we are likely going to have a taper of asset purchases around December. Looking at price action today, markets largely took the information in stride, particularly our favored risk expression, i.e., US stocks, which are up approximately 0.15% following the press conference. Global asset pricing added to inflationary signals at the monthly level:

From a capital flows perspective, we largely saw gold and the Euro weaker on a one-day basis:

Overall, the dollar remained bid versus major currencies & commodities:

We think the Fed’s moves today reassured us that we are indeed moving towards a taper scenario much like 2013- i.e., where growth and inflation stabilize (albeit at high levels). Today’s meeting told us that the FOMC committee expects inflation to decrease along with unemployment, with the latter being their predominant concern. According to our estimates, the labor market conditions for a taper would be met around December 2021- March 2022:

Therefore, we think that our base case remains, i.e., that we will have price action occur much like the 2013 taper of asset purchases- where US stocks were one of the most resilient assets globally. The major risk to this view is the potential for substantially higher than expected inflation while growth slows. Thus far, based on our forecast models and market-implied pricing, this view seems unlikely. Resultantly, gold looks deceptively cheap, as we show below via our Trading Tools Report. While there is potential for a stagflationary environment in markets, we need more evidence of inflation persistence to trigger a buy on gold. Nonetheless, we are watching carefully:

As a refresher:

  • Trading Range: These ranges represent a trading bank within which a currency should trade based on multiple market factors. If we are long- prices above the upside range indicate the asset is expensive, and prices below the downside range suggest that they are cheap and vice versa if we are short.
  • Year-to-Date Returns: This is the price performance of a given currency over the course of the current calendar year, in percentage terms. We also compare the current price to the 52-week high and low for reference.
  • Price Momentum: This looks at cumulative rolling returns for a selected lookback period.  Positive momentum is good if we are long and bad if we are short. 
  • Implied Volatility Discount/Premium: This tells us what the market expects in volatility relative to the history of volatility. If we are long a currency, we typically want market implied volatility to be higher than historical volatility and vice versa if we are short.

As a reminder- it is not just enough to have the technical tools we provide here. You need to know the fundamental developments in markets that are driving these moves! Head to https://www.fxdd.com/mt/en to get access to our research and analysis.