The Fed's Magic Act
And so we come to it tomorrow...the big day the market has been waiting on for the year-end Fed announcement.
The entire market has priced in a 100% chance of a 25 basis point hike...literally. That's all the analysts talk about. They also say it'll be a ho-hum moment and that all they're really gonna look at is the statement after the announcement when she speaks at the press conference.
But the EU and UJ charts tell us something different. Those 2 charts are telling us that we're due for some kind of shock reversal on both pairs.
So the question is...what could cause such a shock? It certainly isn't the 25 basis point increase everyone expects, although the "buy the rumor, sell the news" story could kick into play. But that really wouldn't be that volatile.
You see, Yellen's back is really against the wall here. Every country out there is doing nothing but cuts...watering down their currency by cutting rates. Yellen really doesn't want to be the only kid on the block raising rates and risking the US dollar going even higher because she knows that's counter productive. But, she doesn't want to stop the stock market rally either.
Currently, the US dollar and the stock market have gone up together, which is unnatural. They should have an inverse relationship...market up, dollar down and vice versa.
So how does she pull a rabbit out of the hat and keep the market up and tank the dollar? What if...just what if...she pulls a shocker and only raises rates by 1/8 of a percent...only 12.5 basis points instead of 25. Or, better yet, what if she really throws em a curve ball and holds steady with NO RATE INCREASE. Now that one would severely tank the dollar and the market would love the idea of a further free ride...thus effectively killing 2 birds with one stone.
Of course, it doesn't have to be Yellen...the shock could come from another source. But I'm really wondering at this point if things won't go very differently tomorrow than what literally 100% of the analysts are all saying.
Time will tell...just putting in my humble opinion as always.