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Fed In Focus

Overview

This week is likely to be all about the federal reserve, and the focus remains strong to see what the Fed will bring in its wake, and there is a degree of concern of what the Fed might do. The S&P had the largest decline in 2 months and showing signs that the markets are infact concerned of what it means. The U.S. dollar does not display any firm upswing, but it is at a point where resistance turned support and is hanging around for several days waiting for a guidance.

Sentiment side of the currencies have been hurt starting from the Aussie's that had a large decline. Last week against the backdrop of the S&P, Kiwi started to turn lower from the resistance, the question remains for us to find out if the Fed announcement will be a good or a bad thing for sentiment and will the fed's announcement actually boost the U.S. dollar? There are a lot of ways we can look at it, and the investors are not in one mind as usual because, we are looking here at a situation that is rather inconsistent over the past recent weeks. The U.S. dollar has been very responsive to the Fed and sometimes haven't. The markets specifically would take the view that a Fed hike is a sign of help in the US economy and is a good thing for sentiment, and suggests that the strong US economy evidenced by the hike will help offset weakness else where. There is a counter argument that says since you are relying on the U.S. economy to be an offset for the weakening elsewhere, the rate hike actually undermines to be a counter veiling force, and there by the "Rate Hike" should be risk negative and fuel risk aversion. All of these things amounts to a confused market that is not set on how it feels and precisely what it thinks of the path for now. There is a quite a bit of confusion and risk that investors are assigning to what is going on here. We think that this masks a situation that is a lot more clearer than the odds, we already know that there is a very strong probability that Fed is going to raise rate. We have seen the price in the fed funds future, for the past several days they have hovered around +or- 80, so we generally have a good sense that the market infact thinks that the rate hike is coming.

GBP/USD

The downside pressure has started in GBP/USD, this is followed by many fundamental factors that are currently going on in the market, but we can spot this turn by using a channel in the daily chart. The pair had breached the initial highs that was at the upper channel this Friday and is trading in a negative zone since market opens. We are on the sell side of the market and favor the U.S. Dollar, and will continue to trail this pair till 1.50397/1.49403.

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