The Federal Reserve Review28.07.2021by Michalis Efthymiou
This week we have three major events in the United States which are known to course high levels of volatility, specifically with the US Dollar and the US Stock market. The level of volatility will depend on the actual announcement and the market reaction but in general the releases rank high on volatility reports.
Federal Open Market Committee Statements – the statement will cover three pieces of information which traders will be looking out for. Firstly, the statement will confirm the outcome of votes on interest rates. For example, how many of the members voted for an alteration. This will give the market an indication of how likely an alteration may be triggered in the coming weeks or months. Secondly the statement will discuss the current economic outlook and lastly, predictions of the future monetary policy and economy.
Federal Open Market Committee Conference – the conference will still involve the committee as well as the chairmen. As part of the conference the main subjects will be similar to the statement, but it is an opportunity for members of the press to actually ask direct questions. Any dovish or hawkish comments can affect the US exchanges.
Advanced Gross Domestic Product – the advanced GDP is a figure released by the US’s Bureau of Economic Analysis indicating the total value of all goods and services within the borders. The figure is used by the market to evaluate the economic activity and the general condition of the economy. The big market players such as Central Banks and large organisations are likely going to be more driven towards currencies which are backed by a strong economy and political system.
So, it’s a big week ahead of us for the US Dollar!
The US Dollar today is forming a price correction after a decline yesterday. The price correction currently stands at an 86% correction. The price of the US Dollar Index still remains higher than the 2 weeks and 1-month average price movement. Though traders should keep in mind that the event over the next few days is likely to cause volatility and could possibly spark an unexpected reaction.
Market participants over the past quarter have believed that the regulator will soon be forced to cut incentives as inflation continues to rise in the US. Inflation has now fit a level of hyperinflation, the figure over the past three months has increased from 2.6% to 5.4%. The Federal Reserve had expected inflation to rise but did not expect a level higher than 4.5%. The issue now is whether the inflation will be temporary and if it will have a negative effect on the current economic conditions.
The market was more interested in hearing about possible tapering of the current quantitative easing program in order to control inflation, however, the Chairman so far has been more interested in the dangers of rising COVID-19 cases and restrictions. Cases in the US have risen again above 100,000 per day (five times higher than the start of the month).
The two-day meeting is due to end today (28th July 2021) with a final speech and conference. The outcome can be one of two possibilities. However, regardless of the outcome tensions remain high.
Even a hint of a possible reduction in the quantitative easing program will be enough for the US Dollar to witness an increased level of volatility. Lowering the quantitative easing is known in economics to support currencies as it reduces the money flow in the economy. The neutral position of the regulator, in turn, would be negative for the US Dollar. However, traders have to keep in mind that other elements also play a part in the pricing of the asset.
The Federal Reserve Decision as well as the Gross Domestic Product can have a significant effect on the pricing of not only the US Dollar but also US stock exchanges. Traders will be closely evaluating the developments throughout the next 24 hours as well as the price reaction.
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