Strong Signals for December Rate Hike from Federal Reserve Members
Voting members from the Riksbank in Sweden chose yesterday to leave the current -0.35% interest rate in the country unchanged, instead seeing fit to expand quantitative easing by SEK65 billion. The size and duration of the expansion was not expected, with the massive sum to be spent on asset purchases through June of 2016. In a somewhat dovish tone given the current level of economic success in Sweden, the Central Bank revised its outlook lower due to sustained global risk and left room in yesterday’s statement for market participants to anticipate a potential rate cut. The larger than expected expansion of easing measures and the dovish tone took traders by surprise, and spurred a -0.57% decline in the EURSEK pair, which closed at an 8-day low at 9.3380. The moves by the Swedes are largely considered anticipatory to the ECB’s own potential expansion later in the year.
The expected and delivered result of October’s Federal Open Market Committee meeting in the US was an unchanged interest rate. However, the tone of the meeting was decidedly hawkish and caught the markets by surprise. Comments included the notion that the US economy is on track and may be healthy enough to endure a rate hike in December after all. Fed funds futures are currently pricing in a 47% chance of a rate hike in December as sentiment surrounding liftoff changes. Instead of a unanimous vote to keep rates steady, yesterday’s meeting had one dissenter in favor of immediate liftoff, namely Richmond Federal Reserve President Jeff Lacker. This news and the general flavor of the affair pushed the dollar up 1.15% against the Euro, with the EURUSD pair closing at 1.0921 and precious metals also sinking.
Members of the Reserve Bank of New Zealand also elected to keep rates unchanged, citing the recent global gains in the dairy trade as a boon to the economy enough to drastically improve both consumer and business confidence. Markets expected rates to remain steady at 2.75%, yet the RBNZ left room for potential changes to rates should the Kiwi dollar become too strong or global trade dampen the inflation outlook. This was mentioned specifically by the Governor of the RBNZ, Graeme Wheeler, who stated that rate cuts are probable should the stronger Kiwi dollar slow down domestic trade and therefore medium-term inflation. Fair weather results like the bump in commodities means the Central Bank will stave off a rate cut for the meantime, yet the prospect remains. The Kiwi dollar leaned -0.90% lower yesterday to close at 0.6690.
GBPCHF Equidistant Channel Trading Opportunity
The continued ascension in UK economic data has more than offset the recent data misses, especially following the GDP announcement in a growing sign that markets believe the Bank of England will move to raise rates in early 2016. The continued emphasis on keeping the Swiss Franc competitive has contributed to the prevailing weakness in the currency, helping the GBPCHF pair appreciate over time. The equidistant channel formation emerging in the GBPCHF has a bullish bias with ideal positions taken near the lower channel line targeting the upper channel line for an exit. Should prices fall below the lower channel line it could be indicative of a channel-based breakout to the downside to be confirmed by renewed momentum and higher trading volumes.