A brief look at 4 potential scenarios and what could well happen post FOMC. This is far from perfect but give a good glimpse on how traders could position themselves going forward.
One thing for sure, it all looks rather calm now but we are heading into the perfect storm – potentially a strong HangOver thereafter!
Hike (Hawkish speech)
- US dollar should get a boost to break previous high or at least a retest of previous high
- Continue strength and faith in dollar long resume (if Yellen talk more about future rate hike)
- Sell off in Precious Metals – new low imminent
- Euro and Sterling to retest previous ECB low (potential fade for a short term bounce)
- Equity priced in rate hike and with more rate hike we see Equity initial sell off then recovery
Hike (Dovish speech) most likely scenario?
- US dollar get some love but a pump and dump scenario can happen
- Initial selling in Euro and Sterling but short covering resume higher (short squeeze?)
- Precious metal retest or made double bottom but break higher
- Equity will ramp higher with potential ATH as targets but dollar will dictate
No Hike (Hawkish speech)
- US dollar tumbled for fresh low but will have a V shape recovery post speech
- Euro and Sterling break higher but fail to hold on to gains – with selling resumption base on FOMC speech
- Precious metal see similar fate – a short term rise and a big fall to retest previous low or make new low / a short term fall but rally?
- Equity market should benefit as no rate hike
- Fed lose credibility and future conference will be very much data dependant
No Hike (Dovish speech)
- US dollar long is in big trouble and heading to the exit door
- Equities could head lower if Euro (risk off) start to spike higher
- Currencies VS USD to benefit and spike higher
- Fed lose credibility and market could well puke lower asking for additional QE since Central banks are not confident
- Precious metals and commodities will rally higher
Good luck and safe trading.