Fed Pushes Timetable

Daily Analysis - 09/04/2015

Federal Reserve Meeting Minutes Shows Members Mixed on Raising Interest Rates at June Meeting


The FOMC members’ wide ranging views towards the interest rate outlook adds to confusion as the split in timelines becomes more glaring amid the differing perspectives on the strength of the recovery. Doves such as Kocherlakota calling for the possibility of renewed easing contrast to hawks like Stanley Fischer who believe in sooner hikes mean the timetable will be pushed back as dissension grows among the ranks.

Blame the Weather

In comments preceding the FOMC Meeting Minutes, New York Fed Chair William Dudley delivered his remarks on the latest set of disappointing data. In his observations, he noted that that the March payrolls data should not be taken as a huge signal after considering the weather conditions. The sharpest reaction came from his judgment that the Federal Reserve’s course of action in raising rates will depend largely on the market response after liftoff. This confirmed the sentiment evident in the FOMC Meeting Minutes considering that many members are expecting a June hike at the very earliest, with many members pondering a delayed timetable that could see rates rise at the end of the year or possibly even in 2016. The broader market reaction was rather limited with gains limited to the Nasdaq Composite and the US dollar which has reversed from a substantial losing streak.


Storage Concerns Grow

The Energy Information Administration Data confirmed one of the biggest builds to US oil inventories in over a decade as burgeoning supplies see excess storage capacity dwindling. The 10.949 million barrel build shattered expectations of a 3.429 barrel addition to inventories as major storage facilities face rapidly diminishing space for excess production. The kneejerk reaction in crude oil prices was a substantial correction lower as space is estimated to run out sooner than June, with major Cushing Oklahoma facilities already over 90% full.   Crude oil prices moved over 6% intraday, managing to remain above the $50 per barrel threshold as downside pressure in energy prices intensifies. A slowing rig count decline and production data showing that week over week gains in output could be the near-term factors that see key support levels broken.


Safety Bid Proves Mixed

In an unprecedented move yesterday, the latest Swiss sovereign debt auction saw a record low yield for 10-year debt, after becoming the first nation to issue the notes at a negative yield. Investors are now willing to pay periodic interest payments for the safe return of their principle at maturity. This is the first instance of a maturity beyond 7-year debt seeing yields print in negative territory in the history of modern finance, highlighting the increasing challenges facing Central Bankers as they desperately try and accommodate growth. While investors are looking for the safety in Switzerland and bidding the Franc higher versus the Euro, they are curiously absent from speculation in gold prices which fell back below the $1200 level following the release of the FOMC Minutes. The reversal in the dollar continues to be the factor behind the volatility in gold prices.


USDCAD Horizontal Range Technical Pattern

The horizontal range intact in the USDCAD currency pair for the past few months remains largely intact after the FOMC Minutes sent the dollar higher on renewed optimism that Federal Reserve members are largely intent on raising rates in 2015. Even amid the nosedive in United States macroeconomic data, the Canadian outlook is more troubling considering the importance of the energy sector to broader economic growth. The range between 1.2380 and 1.2795 continues to be the boundary for prices as the pair trends horizontally over the near-term with no drastic changes to the outlook for either nation anticipated. The prevailing strategy is to trade the range, using the support and resistance levels and entry and exit points with any move outside the range to be treated as a breakout trade.


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