Federal Reserve in Focus for Wednesday
- Federal Reserve interest rate announcement
- Mixed expectations from trading public
- Overnight repo operations restarted
During Wednesday’s trading session, without a doubt the largest influence will be coming out of the Federal Reserve. While there is an interest rate decision at 2:30 PM Eastern Standard Time, most participants believe that a cut of 25 bps will be the result. However, there are some who believe a cut of 50 bps could be coming. As time goes on, expectations have been dampened somewhat.
Overnight repo operations on Tuesday
The New York Federal Reserve did a repo operation during the day on Tuesday, which is injecting liquidity into the banking system – a very bad sign. The fact that they are finding the need to liquefy the US banking system shows that they may be on their back heels, as liquidity is drying. That almost assures us that the Federal Reserve will have to do something to ease the situation in the marketplace. This is yet another piece of the puzzle as to where they may be thinking things are going.
It’s the statement, more than the cut
There will be a statement accompanying the interest rate cut, and then the press conference will follow. It’s going to be the statement in the press conference that will come into focus more than anything else. This will be of great interest to traders around the world, and there are also algorithms out there that will trade based on certain keywords that are stated. This is going to be a very choppy and erratic time for the market across several different assets, especially when it comes to the US indices or commodities.
Obviously, the forex markets can move around quite a bit as well, but as they are much thicker than a lot of the other markets, it makes sense that they tend to be the most stable. At this point, it’s going to be about what happens with the US dollar and expectations going forward in America, as most commodities and markets are priced in US dollars.
You may wish to take the day off on Wednesday, because this could be a significant day for the overall trend, and therefore several different markets could be decided. In the forex world, we could see whether or not the EUR/USD reverses or if it simply continues lower. Gold could continue to go much higher if the Federal Reserve does look dovish. The S&P 500 will obviously be very sensitive as well, as a loose and easy Fed drives down interest rates, which gives stock markets a much more significant appeal.
However, if the Federal Reserve does not sound dovish or perhaps doesn’t even cut rates, that may well cause absolute chaos in several markets and massive repositioning. However, as things stand right now, it’s very likely that the Fed will cut 25 bps and signal that they are getting ready to cut several times further in the future.