Pre-FOMC HangOver Sketch

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.

 

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