August 14, 2022
  • August 14, 2022

Beware of a strong Fed consensus

By on April 29, 2021 0

Expectations for Wednesday’s Fed statement are low, but be careful not to be complacent as recent history calls for caution. The GBP was the best performer while the Yen lagged behind. The CAD is the strongest currency after exploding retail sales figures. The chart below highlights the EURUSD reaction to each of the Fed’s last 8 decisions, showing that the last meeting was the most positive for the pair with most of the gains concentrated in the 1st hour. We have shared similar charts for XAUUSD and DOW30 with our WhatsApp Arabic and English broadcast groups.

More data confirmed the optimistic mood in the United States on Tuesday as the Conference Board’s consumer confidence reading rose from 109.0 to 121.7. This easily beat the consensus of 113.0 and is the best reading since the pandemic.

The Richmond Fed stock was flat at 17 and missed Consensus 21, but measures on wages, prices and orders were all high – which is a recurring theme.

The next step is the Fed’s decision at 6:00 p.m. GMT. There is a strong consensus that nothing new is coming and that Powell will continue to stress that inflation will be transient and that it will take several months to recoup the job losses.

This is probably the right solution, but such a strong consensus and such market complacency often leaves traders vulnerable. Predicting a tap would be a dramatic turnaround from Powell, who said just days ago that the Fed would change after making progress, not better forecasts. Still, he can’t help but be more optimistic at the press conference and the market might take that as hawkish. Over the past 8 months, the Fed’s decisions have repeatedly triggered cycles of risk aversion and this is the main thing to watch out for. Even the smallest hints of a less cowardly Powell policy led to punitive swings.

Aside from the Fed, the CAD will be a place to watch with February retail sales. If the theme of consumer resilience comes through here, it bodes well for the current lockdown.