As per previous write up in “Pre-FOMC HangOver Sketch” we have the following results
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
RIP to zero interest rate and we have lift off with the potential of more rate hike in 2016 – portraying a strong outlook on the overall US economy. Yellen remain very dovish and accommodative to the market despite the miniscule hike and gave the market what it wants. Now that we have the Federal Reserve credibility in-tact, the market can move forward with the delayed Santa Rally.
Risk-On sentiment to prevail till the end of 2015 and dollar to sustain its momentum – giving the control back to “Euro parity” team another chance to have a go. Commodities had a choppy session but with low volume trading expected in the coming weeks, we could then see the real damage.
The next question for 2016 are as follows:
- Watch for steady rise in unemployment
- Fed ready to act if the economy tumbles
- They now have extra tools to stimulate the economy
- Inflation should rise to 2% gradually
- Fed is aware of external shocks
In conclusion, Yellen have her Santa hat on and is not ready to rock the boat – basically giving what the market wants and this Fed chairwoman continue to be dictated by the fragility of the economy. However, that will be another topic of discussion for next year.