So Yellen and other committee members were totally unfazed by the weaker than anticipated CPI and core retail sales data released just some few hours before the announcement. Terming it as transitory-just like Q1 GDP growth during March rate hike, the Feds expect core and headline inflation to bounce back in the coming months and at least support the Fed’s economic optimism. A major take out from last night announcement was the hawkish stance, the optimism and the bid to normalize rates. As a matter of fact, Yellen placed the terminal fund rate at just 3% by end of 2018 and that means they will need to hike 4 times this year and 3 times next year to achieve the huge Fund rate target. The Fed also went on and said that they will begin downsizing their $4.5T balance sheet sometimes year-probably from September- and that the treasury will begin rolling off $6B in a quarterly basis in the next 12 months until a normalize extraction of $30B per month is reached. This to me was more information than the market expected and even though there is minimum progress from congress especially in implementing key economic policies-tax reforms and clear cut plans on infrastructure projects promised, the USD should find some reprieve at least temporarily. Remember, rate hike talks and QE tapering seems to be the new talk amongst central bankers. Governor Poloz confirmed this, RBA chairman is also positive of Australia’s economy and hints a hike while BoJ’s Kuroda is on his Yield curve control.
Today, let’s trade the Chinese Yuan as there is a possibility for an upside. First off, it’s overextended and over-valued vis-a vis the USD. As you can see in the weekly chart, last week price action closed below the lower BB and given the settings of the indicator, price is outside the 5% which is not within the bands meaning there are high chances of price correcting towards the middle band for equilibrium purposes and that is where we jump in. Also, look at the stochastics. There is a buy signal which has formed at the 61.8% Fibonacci level drawn from last year’s Hi-Lo with a lot of buying pressure as seen from the past two weekly candlesticks.
Trade as follows:
Stop Loss: 6.74
Take Profit: 6.9250-Just above the consolidation before support trend line was broken
Have a good trading day.