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FX & Equities: US GDP & FOMC

Posted by Akhilesh Ganti on Jul 29, 2014 11:03:00 PM

Markets are mired in tight ranges as they await the release of US 2Q GDP and FOMC monetary policy statement. Expectations are for advance Q2 GDP reading to show that the US economy did indeed rebound, estimates are for a +3.0% reading, after weather related issue(s) apparently caused it to post a dismal -2.9% number the previous quarter. While this will garner a fair bit of attention, especially if it misses the mark, the highlight will be the FOMC announcement that is due out a bit later on. Economists expect the tapering to continue as the committee will likely scale back their monthly asset purchases by another $10 Billion to $25 Billion which would keep them on pace to end the QE program completely by the end of this year.

The price action of the Dollar Index, which rose to multi week high and sits just below key resistance at 81.30, seems to suggest that traders are discounting the potential for a hawkish twist in the statement. Since there will not be a press conference after the release, the missive will be thoroughly scrutinized for hints of changes in policy, specifically any language insinuating that potential rate hikes might be closer than what had been intimated so far. If this happens then one can expect an extremely volatile trading environment where bond yields surge, stocks sell off and the dollar explodes higher. Again, it's a big "IF", but any deviation in the wording that is construed as being hawkish will be seen as a shift in policy and be as impactful as Bernanke's tapering comment last year.

Ranges:{WWM's New ALPHA Trader - DAILY charts [EUR, GBP, AUD, YEN, GOLD, OIL, DXY]}(click to enlarge)

FX 073014

Equities:{WWM's New ALPHA Trader - DAILY charts [Dow30, SP500, Nasdaq100, Nikkei225, China, HKG40, Nifty50, ASX200]}(click to enlarge)

STOCKS 073014


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