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:

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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.