The FOMC Turns Dovish, This Is The Analysis You Need

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Free Trading Education!
    Free Demo Account!
    Perfect for Beginners!

  • Binomo
    Binomo

    2 place in the ranking!

The FOMC Turns Dovish, This Is The Analysis You Need

Technical Overview And Weekly Price Predictions For Major USD Pairs

The Fed suggests monetary policy will be on hold all year, Eurozone PMI shows a dwindling economy, and Brexit drama continues with no real end in sight. This spells uncertainty and volatility in the Forex market, and means opportunities for savvy traders.

EUR/USD – Technical Outlook

After disappointing Eurozone PMI posted the Euro gave up ground against the US Dollar on Friday. The the pair tumbled into the support at 1.1300 which is still holding albeit bearish pressures are high. After confirming resistance at the down trend line the EUR/USD tumbled below the 100 days Exponential Moving Average. It is currently testing the support at 1.1300, if this level is broken the next probable target will become support at 1.1210 and then the YTD (year to date) low at 1.1180.

GBP/USD – Technical Outlook

The Pound dropped into 1.3000 area on the back of another failed Brexit vote but quickly recovered to 1.3150. The bounce confirms support at the moving average and returned price above a bullish trend line. In the recent period the pair failed twice to break resistance at 1.3365 but also bounced at the 100 days Exponential Moving Average. This paints a blurry picture with mixed signals and, considering the Brexit drama, the technical aspect will be overshadowed by uncertainty surrounding the fundamentals. A break of the 100 days EMA will open the door for 1.2790 – 1.2800 but another touch of 1.3365 is not out of the question either.

USD/CHF – Technical Outlook

The pair dropped significantly after yet another failed break of 1.010 and is currently trading at 0.9950. The last fall fro resistance also created a triple top which is a bearish chart pattern. Although the last day has been bullish for the US Dollar the move is nothing more than sellers are some profits off the table. If price stays below the 100 days EMA we will likely see a move into the long term bullish trend line and possibly into 0.9720. As an alternate scenario, the pair could enter a ranging period, trapped between 100 EMA and the resistance at 1.010.

USD/JPY – Technical Outlook

Currently trading at 110.20, the pair is sliding lower after the rejection at 112.15 resistance. The current support is not particularly strong and may be broken without much fuss. The momentum belongs to the sellers and the chart doesn’t show a lot of buying interest. If the current support at 110.30 is broken, we can expect an extended drop, possibly into 108.50 or at least until the Relative Strength Index enters oversold. On the other hand, a bounce from the current level would take the pair into the 100 EMA but unless we get a strong break of the moving average, we cannot expect a significant climb. At best the pair may trend sideways between 110.00 and 112.00.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Free Trading Education!
    Free Demo Account!
    Perfect for Beginners!

  • Binomo
    Binomo

    2 place in the ranking!

Federal Open Market Committee, Its Members, and What It Does

12 Strangers Who Change Your Life 8 Times a Year

The Federal Open Market Committee is the monetary policy arm of the Federal Reserve System, the central bank of the United States. It works with the Federal Reserve Board of Governors to control the three tools of monetary policy. The FOMC controls open market operations. The Board sets the discount rate and reserve requirement.

The FOMC uses its tools to attain the ideal economic growth rate of between 2% and 3%. To achieve that, it must fight unemployment and inflation. The natural rate of unemployment is between 3.5% and 4.5%. Below that, companies can’t find enough workers to remain productive.

The Fed’s target inflation rate is 2%. It wants prices to increase by 2% each year. When that happens, people expect inflation. It motivates them to buy now rather than later. A mild inflation rate spurs demand, and that’s good for economic growth.

To lower unemployment, the FOMC uses expansionary monetary policy. That boosts economic growth by increasing the money supply. It lowers rates to spur economic growth and reduce unemployment. FOMC members who favor this approach are called dovish.

If the economy grows too fast, then prices rise, causing inflation. To fight inflation, it uses contractionary monetary policy. That makes money more expensive, slowing the economy down. A slower economy means that businesses can’t afford to raise prices without losing customers. They may even need to lower prices to gain customers. This combats inflation. Members who favor this approach are called hawkish.

What the FOMC Does

The Committee adjusts interest rates by setting a target for the fed funds rate. This is the rate that banks charge each other for overnight loans known as fed funds. Banks use these loans to make sure they have enough to meet the Fed’s reserve requirement. Banks must keep this reserve each night at their local Federal Reserve bank or in cash in their vaults.

The Committee announces its decisions at its eight meetings per year. It explains its actions by commenting on how well the economy is performing, especially inflation and unemployment.

Although the FOMC sets a target for the fed funds rate, banks actually set the rate itself. The Fed pressures banks to conform to its target with its open market operations. The Fed purchases securities, usually Treasury notes, from member banks. When the Fed wants the rate to fall, it buys securities from banks. In return, it adds to their reserves, giving the bank more fed funds than it wants. Banks will lower the fed funds rate to lend out this extra reserve. Conversely, when the Fed wants rates to rise, it replaces the bank’s reserves with securities. This reduces the amount available to lend, forcing the banks to increase rates.

To fight the 2008 financial crisis, the FOMC greatly expanded its use of open market operations. That’s called quantitative easing. The Fed purchased massive amounts of Treasury notes and mortgage-backed securities to achieve its goals.

Members

The FOMC is supposed to have twelve voting members. It currently has 10. Seven of the 12 positions are filled by the Federal Reserve’s Board of Governors. Congress has only appointed five.

The other five FOMC members are Federal Reserve Bank presidents. Four of them serve one-year terms on a rotating basis.

Jerome Powell is the Chair of the FOMC and the Fed Board. ​ He has been a Fed board member since May 25, 2020. His board term lasts until January 31, 2028. He was also a former senior Treasury official under President George H.W. Bush. He was a visiting scholar at the Bipartisan Policy Center and a partner at the Carlyle Group from 1997 to 2005. President Trump nominated him to replace Janet Yellen as the Fed chair. He is dovish.

Here are the four remaining board members who sit on the FOMC: 

  1. Lael Brainard, former senior Treasury official and an economic adviser to President Clinton. She is dovish.
  2. Randy Quarles, former managing director at Cynosure Group and the Carlyle Group. He was a Treasury official under President George W. Bush. Neither dovish nor hawkish, he favors using strict guidelines that determine when the Fed changes rates. He was Trump’s first appointee. He is also the Vice Chairman for Supervision until October 13, 2021. That position was created by the Dodd-Frank Wall Street Reform Act. ​
  3. Richard Clarida was assistant secretary for economic policy at the U.S. Treasury from 2002 to 2003. He is a hybrid hawk and dove.
  4. Michelle Bowman was the State of Kansas bank commissioner. It’s unknown whether she is hawkish or dovish.

The vice-chairmanship always goes to the president of the Federal Reserve Bank of New York. Since June 2020, that is former San Francisco Fed President John Williams.

The four Federal Reserve bank presidents who rotated onto the FOMC in 2020 are:

  1. Patrick Harker, Philadelphia. Moderate.
  2. Robert Kaplan, Dallas. Dovish.
  3. Neel Kashkari, Minneapolis. Dovish.
  4. Loretta Mester, Cleveland. Hawkish.

Four other Fed bank presidents are alternates in 2020. They become FOMC members in 2021. They are:

  1. Mary C. Daly, San Francisco. Dovish.
  2. Tom Barkin, first vice president, Richmond. Moderate.
  3. Raphael Bostic, Atlanta. Former Obama administration housing official. Moderate.
  4. Charles Evans, Chicago. Very dovish.

The first vice-president of the Bank of New York is a standing alternate. For 2020. he is Michael Strine.

These four bank presidents become alternates in 2021 and FOMC members in 2022. They are:

  1. James Bullard, St. Louis. Dovish.
  2. Esther George, Kansas City. Hawkish.
  3. Eric Rosengren, Boston. Dovish.
  4. Loretta Mester, Cleveland. Hawkish.

The remaining bank presidents will be alternates in 2022 and FOMC members in 2023. They are:

  1. Patrick Harker, Philadelphia. Moderate.
  2. Robert Kaplan, Dallas. Dovish.
  3. Neel Kashkari, Minneapolis. Dovish.
  4. Charles Evans, Chicago. Very dovish.

How the FOMC Affects You

The FOMC affects you through control of the fed funds rate. Banks use this rate to guide all other interest rates. As a result, the fed funds rate controls the availability of money to invest in houses, business, and ultimately in your salary and investment returns. This directly affects the value of your retirement portfolio, the cost of your next mortgage, the selling price of your home, and the potential for your next raise.

Pay close attention to the FOMC meeting announcements so you can anticipate economic changes and take steps to enhance your personal finances. (Sources: “This Is the Fed’s Hawk-to-Dove Scorecard,” Bloomberg Businessweek, December 18, 2020. “Where the FOMC Stands,” CNBC, December 20, 2020.)

U.S Mortgage Rates – Mortgage Rates Slide Again as the FED Turns Dovish

Mortgage rates were back on the slide following the previous week’s 1 st rise in 7-weeks. In the week ending 27 th June, 30-year fixed rates fell by 11 basis points to 3.73% reversing a 2 basis point rise from the previous week. That left 30-year rates at the lowest level since late 2020 according to figures released by Freddie Mac.

Compared to this time last year, 30-year fixed rates were down by 82 basis points.

More significantly, 30-year fixed rates are down by 121 basis points since last November’s most recent peak of 4.94%.

Economic Data from the Week

Key stats out of the U.S through the 1 st half of the week were on the lighter side.

Consumer confidence and durable goods orders figures provided direction on Tuesday and Wednesday.

A slide in consumer confidence and mixed durable goods orders figures supported the downward trend in mortgage rates on the week.

Outside of the numbers, market sentiment towards the G20 Summit also had an impact.

While Treasury yields were on the decline, FED Chair Powell failed to talk of a near-term rate cut on Tuesday suggesting that the FED may not be as dovish as the FOMC projections had suggested.

The G20 Summit and how talks between Trump and Xi progress will have a material influence on what lies ahead from a monetary policy perspective.

Freddie Mac Rates

The weekly average rates for new mortgages as of 27 th June were quoted by Freddie Mac to be:

  • 30-year fixed rates decreased by 11 basis points to 3.73% in the week. Rates were down from 4.55% from a year ago. The average fee remained unchanged at 0.5 points.
  • 15-year fixed rates fell by 9 basis point to 3.16% in the week. Rates were down from 4.04% from a year ago. The average fee rose from 0.4 points to 0.5 points.
  • 5-year fixed rates fell by 9 basis points to 3.39% in the week. Rates were down by 48 basis points from last year’s 3.87%. The average fee held steady at 0.4 points.

According to Freddie Mac, home purchase applications found support over the last 2-months from falling mortgage rates. Through late June, home purchase applications rose by 5 percentage points compared with the previous month. Freddie Mac anticipates that the housing market will continue to improve from both a sales and price perspective.

Mortgage Bankers’ Association Rates

For the week ending 21 st June, rates were quoted to be:

  • Average interest rates for 30-year fixed, backed by the FHA, decreased from 4.12% to 4.01%. Points decreased from 0.44 to 0.36 (incl. origination fee) for 80% LTV loans.
  • Average interest rates for 30-year fixed with conforming loan balances decreased from 4.14% to 4.06%. Points decreased from 0.38 to 0.35 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 4.04% to 4.00%. Points remained unchanged at 0.24 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, increased by 1.3% in the week ending 21 st June. The increase partially reversed a 3.4% fall in the week ending 14 th June.

The Refinance Index rose by 3% in the week ending 21 st June. The Index fell by 4% in the previous week ending 14 th June.

The share of refinance mortgage activity increased from 50.2% to 51.5%, following an increase from 49.8% to 50.2% in the week prior.

According to the MBA, market reaction to a more dovish FOMC statement and forecast weighed on Treasury yields and mortgage rates. The fall in rates led to an increase in refinancing activity, partly driven by a 9% surge in VA applications. Following the fall in the week of 21 st June, mortgage rates were at the lowest level since September 2020. In spite of the fall, however, purchase applications fell by 2%, whilst up by 9% compared with a year ago.

For the week ahead

It’s a busy week ahead for the Greenback.

Key stats due out of the U.S through the 1 st half of the week include private sector PMI numbers, factory orders, and trade data and ADP nonfarm employment change figures.

From the economic calendar, the ADP and ISM private-sector PMI survey figures will be the key driver.

While the stats will garner plenty of attention, market reaction to the G20 Summit will ultimately drive Treasury yields and ultimately mortgage rates.

From the previous week, the FED’s preferred inflation figures will also have an influence on yields. The core PCE Price Index rose by just 1.5% year-on-year, falling well short of the FED’s 2% target.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Free Trading Education!
    Free Demo Account!
    Perfect for Beginners!

  • Binomo
    Binomo

    2 place in the ranking!

Like this post? Please share to your friends:
Binary Options Online Trading
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: