Federal Reserve begins two day meeting
On Tuesday, the Federal Reserve began a two day meeting that will discuss monetary policy and all things economic. With the market paying so much attention to the Federal Reserve for direction, you can be assured that during the press conference, at 7:30 PM GMT on Wednesday, there will be a lot of volatility. You can expect assets around the world to react to statements made by Jerome Powell.
No changes expected
The initial thing that people will be paying attention to is the interest rate announcement, which of course should be no changes. Quite frankly, the Federal Reserve has so upset the stock market recently that it’s difficult to imagine a situation where they don’t telegraph well ahead what they are planning on doing. Ultimately, the actual decision itself should probably be a nonevent. However, you should keep in mind that if they do suddenly change their attitude and become more hawkish, this will probably cause a major “risk off” move in the markets.
The press conference
You can just about bet the farm that when the Federal Reserve chairman starts speaking, the whole world will be paying attention. This will have a massive influence on the US dollar which by extension will have a massive influence on assets in general. If that’s going to be the case, you should keep your positions under close at that point. Expect extreme volatility as machines tend to trade headlines and print, and not always in the most logical ways.
However, unless Jerome Powell sounds hawkish, by the time it’s all said and done you will probably see futures markets rally a bit when they get further confirmation that the Federal Reserve isn’t going to stand in the way. As long as that’s going to be the case stock market should continue to rally as they have been fueled on cheap money for a solid decade now.
Gold markets should be washed also, because this could give us an idea as to where gold goes, as it will be a reaction to the US dollar. If the US dollar starts falling rather drastically, perhaps on even more dovish than anticipated comments, gold markets could get a bid. Obviously, the exact opposite can happen as well so keep that in mind also. This is a market that has been extraordinarily volatile as of late, so perhaps it has been awaiting some type of clarity from this meeting to get a little bit more certainty.
One thing is for sure, Wednesday will have the possibility of being a very volatile session, so keep in mind that until we get the Federal Reserve press conference, markets may be very choppy and undecided, and then take off in one direction or the other. This can lead to very difficult trading conditions, but if you can go into the game knowing this, you can make preparations to widen your stop losses, and cut down your position size. Caution is needed, but clarity could be coming in just 24 hours.