20th December 2018
The U.S. Federal Reserve raised interest rates as expected, by another 0.25 percentage points, taking its headline rate to 2.5pc, yet markets were clearly hoping for a more dovish tilt as stocks and Treasury yields tumbled in the aftermath. The American economy is “very healthy” and needs more interest rate rises, chairman Jerome Powell said, rejecting pressure from President Donald Trump to hold rates down. “This is the best year since the financial crisis, you’ve got growth well above trend, unemployment dropping, inflation moving up to 2pc. We’ve also got a positive forecast,” said Mr Powell, speaking as the Federal Reserve raised interest rates by 0.25 percentage points to 2.5pc.
It is the fourth hike this year. Officials raised rates despite the President’s warning it could be “yet another mistake”.
The Federal Reserve raised rates for the fourth time this year, looking through a stock-market selloff and defying pressure from President Donald Trump, while dialing back projections for interest rates and economic growth in 2019. By trimming the number of rate hikes they foresee in 2019, to two from three, policy makers signaled they may soon pause their monetary tightening campaign. Officials had a median projection of one move in 2020. Chairman Jerome Powell, speaking at a press conference after the decision on Wednesday, stressed that policy was not on a preset course. “There’s significant uncertainty about the — both the path and the ultimate destination of any further rate increases,” Powell told reporters. Still, the decision to stick with forward guidance, rather than abandon it as some had thought possible, will continue to come in handy as uncertainty about the macro picture grows
While the Fed leaned dovish during its latest policy meeting, financial markets clearly wanted more. U.S. stocks fell to a nearly 15-month low after the policy decision, with the S&P 500 closing just a bit above 2,500, as Powell failed to quell investor angst about the possibility the central bank will hurt economic growth. Markets had been priced for just one hike next year, not the two the FOMC sees. Treasury yields slid and the yield curve flattened, while the U.S. dollar recouped earlier losses to finish slightly higher in the session. The VIX volatility index remains above 25, versus its lifetime average level below 20.
FTSE 100 Trading Signals, Forecast and Prediction
With the fall last night in the USA knocking over 150 points off the FTSE at one point I would expect a bit of a retrace back up to start with this morning. We now have 2 hour resistance at 6700, and also the daily pivot and 30min coral coinciding at 6715 so a rise to this area first thing looks possible, as the market tries to retrace a bit of the fall last night. The backdrop obviously is still pretty bearish, and the big money is still remaining short I expect.
We are bang on S1 as I write this at 6639, and I expect that level to hold initially. I am not sure the bulls will have the momentum to rise above the 6715 level though today. However, with stocks oversold we may well see some brave buyers.
There is better support at the 6580/6585 level where we have S2 and also some daily support. A long around this area would appear to make sense, especially if we head there first thing today. I do have 30min moving average resistance at 6683 initially, so we may stutter here, though I think the bulls will be keen to test the 6700 level as they try to aim for yesterdays close price at 6765. I don’t think they will manage that high today though.
So, cautiously bullish this morning first thing for a rise towards 6700/6715 then a drop back down. The 6580 area might actually be a decent swing long area to hold till the end of the year for any possible rally. A lot of the bulls will starting to be burned now, as a lot of “experts” were bigging up longs at 7150 to 7000 level. As such, the market might have squeezed enough of them now and could well rise for the next few sessions.
See how today pans out and watch the price action at the 6580 area closely. Good luck today.
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