Market Expectations Are “Out Of Sync” With Federal Reserve Monetary Policy…

Market Expectations Are “Out Of Sync” With Federal Reserve Monetary Policy, stated by Fed’s Dudley today as he sees that Bernanke’s statement from the last FOMC Press Conference did not indicate that the Federal Funds Rate hike is coming soon or Feds will end QE at the next meeting.  As a matter of fact, here are some highlights by Fed Dudley:

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    • (US) Fed’s Dudley (dove, voter): Initial rate hikes are a long way off, could arrive well after 6.5% unemployment level is crossed; economy may diverge significantly from FOMC forecast
    • Recent market expectations for an earlier rate rise are “quite out of sync” with the statements and expectations of the FOMC- If labor market conditions and economic growth were less favorable than FOMC’s outlook, asset purchases would continue at a higher pace for longer.
    • Fed is most likely to end QE asset purchases around a 7.0% unemployment rate, could wind down buying in 2014. Outlook depends entirely on the path of the economy.

Joining Dudley, Fed’s Powell (FOMC voter) also chimed in and said that market expectations for a 2014 rate increase are out of line with Fed’s view, it is most likely QE will continue for some time.  Furthermore, Power stated that “Data is more important than dates in QE.”, which echoes what other members have to saying lately, which is to focus more on economic data rather on dates.

Looking at recent economic data out of U.S., aside from somewhat impressive improvements out of the housing sector, most other data have been inline or slightly worse, especially after the Q1 Final GDP q/q release on Wednesday, which missed forecast of 2.4% and came in at just 1.8%.  Considering that most analysts average forecast for Q1 GDP during the first GDP release was 3.0%, it is a wake up call that perhaps the market has been overreacting.

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Using statements from Fed’s Dudley,

If labor market conditions and economic growth were less favorable than FOMC’s outlook, asset purchases would continue at a higher pace for longer…

… it’s easy to see that USD strength is not sustainable.  Perhaps we’ll see some resilience in the USD for as long as economic data are strong, but as soon as disappointing news hit the market, we’ll see some sharp USD sell-offs as traders take profit and close their long USD trades.  My view is to BUY EURUSD on major support or after negative US news releases, as we are likely to see a more profound selling pressure on the dollar.

 

Thanks,

 

henry-sig

 

 

 

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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Comments

  1. Hi Henry, thank you for the breaking news, love you.

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