USD All Set to Rock the Currencies and Other Financial Markets

Ahead of the FOMC meeting, in which the decision to raise the interest rates will be taken, the markets’ mind is already firm. Irrespective of whatever decision the Fed/ FOMC may take about raising or not raising the interest rate, the markets are firm about the direction of the USD and other currencies.

“Does Fed drive the markets or,” is it the other way around, “Markets drive the Fed?”

Personally I believe that, if this time Fed defers the decision to raise interest rate, it will then perhaps lose control over the fresh timing of raising the interest rate because in a window of next three months (till the time the next FOMC meeting takes place), many external – economic and political – factors may take over the Fed’s ability to dictate interest rates. It is “Now or ‘Not for a long time’” situation for Fed this time. So in all probability, Fed will raise interest rates this time contrary to what many market participants are calculating through their innovative and imaginative ‘Probability Meter’. Personally, I am very keen to see this probability model or probability meter.

So, the next set of thoughts which cross my mind immediately is that, that if Fed is aware of the precarious situation it is in and it would not like to miss the chance of raising interest rates, then raising the interest rate at this juncture would strengthen the USD. All the same, when I look at the charts, I get confused.

So I am at cross roads to conclude (with a caveat that I could possibly go wrong) that even if Fed increases the interest rate, the dollar will drop against major currencies. The two divergent events (result divergent of the action), have the capability of bringing havoc to the financial markets.

Given below are the charts of various pairs of currencies:

The author can be contacted at: riskadvisory@outlook.com

DISCLAIMER:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as advice to buy, hold and sell or otherwise deal in any kind of commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

NIFTY and GLOBAL FACTORS

NIFTY

Nifty has made a bearish gravestone doji on weekly candlestick charts. This is also coupled with a massive open interest build up. Although confirmation is required on weekly charts and the fortnightly and multi-period charts have yet to form an indication of bearishness, the above two factors are indicative enough of the bearishness of Nifty. The fall may be gradual or precipitous with odds heavily favouring the latter.

GLOBAL FACTORS

A couple of other factors also weighed heavily on the Dow and Dax.

European Central Bank did not announce a fresh QE while retaining the rates to be the same on Thursday, Sep 8, 2016. Personally, on hearing the chairperson of ECB speak during the live telecast, I could not feel comfort in his voice though his speech attempted to give a comfort to the financial markets.

On Friday, German exports and imports data (month on month) for July ’16 indicated a drop of 2.6% and 0.7% respectively, which is a significant drop.

Another news which got unnoticed/ ignored during the last week (Monday) was a drop in the US ISM non-manufacturing PMI to 51.4 against 55.5 reported for the previous month. This is indicative of a slow down in growth. A figure below 50 is indicative of contraction in the economy.

On global front, Dow had a near 400 points shave on the last trading day of the week gone by.

CONTACT

The author can be contacted at: riskadvisory@outlook.com

DISCLAIMER:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as advice to buy, hold and sell or otherwise deal in any kind of commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.