US Fed swaps 'considerable time' for we can 'be patient' - boosts US dollar strength, bolsters existing overnight risk-on move, ASX futures 56 higher

Traders will be focused on two things today: oil's seemingly-premature intra-day rally; and the subjective interpretation of last night's US Federal Reserve statement. First clarification to make (for those who like to sleep in) is that the S&P 500 & Dow Jones Industrial Average were having a decent night prior to the US Federal Reserves interest rate decision and policy statement announcements; however, after digesting the announcement and posturing themselves for an hour, markets did rally strongly into the close last night. You can see from the first chart that the S&P 500 (black) spent its last hour rallying, while the ASX futures kept pace and thus we have ourselves an exciting opening.

Equity markets aside (they were due for a bit of a bounce irrespective of what the Fed had to say), foreign exchange and interest rate traders were so focused on the binary trade of "Will the Fed leave in 'considerable time' or remove 'considerable time' from their statement" (with regard to interest rates being left unchanged for a 'considerable time') that they seemed to completely ignore the rewording of the statement, which really negated the chance, and focused on Yellen's tone of voice at 6:30am, Sydney time. As you can see from a quick glance at the Wall Street Journal's Fed Statement Tracker, the Fed clarified that "The committee sees this (latest) guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0-1/4 percent target range for the federal funds rate for a considerable time..." Following the press conference, the US dollar rallied immediately by strengthening the US dollar index, which in turn pushed the Australian dollar, Japanese yen and euro lower, as indicated in today's second chart, which shows these moves in percentage terms following the announcement. The yen's move down (indicated here by a move up in the USDJPY pair) was the most dramatic in percentage terms.

You can see at 6:30am Sydney time that sentiment inverted and the logic above (as read from the official statement) was put aside while traders interpreted Janet Yellen's tone at the 6:30am press conference as less dovish than expected, meaning the market considered her tone to indicate that she was inclined to move higher on rates at an earlier point than expected. But that's not up to the Fed, it's really up to the data. And it seems as though there are plenty of crystal-ball gazers out there defining the fall in oil prices as 'transitory' and 'temporary'. Maybe they've got access to inside information that we don't, but as far as I'm concerned, like water filtering through sand, lower energy prices are still making their way through producer prices and industry and will eventually create a greater (negative) effect on inflation, once falls in prices are deemed the norm and discounts are passed onto consumers.

Will the US Federal Reserve really be so bold as to anticipate that oil prices are going to shoot back up and give them a comfortable gauge of inflation by which to raise rates? I have a personal opinion that the answer is no, but let's put that aside and just focus on the information at hand - the world has just experienced a 45% drop in oil that is tantamount to a global tax cut. This might be good for growth (in certain economies more than others); however, it doesn't spell short-term inflationary pressures, given it is the premise of falling consumer prices that will feed discretionary spending and fuel the potential growth in the first place.

Speaking of oil, let's look at today's last chart of US WTI (here we use the Feb 15 CFD from Rivkin Trader). Prices, which weren't affected by the Fed's announcement, had a significant bounce, from under US$54.65 before midnight Sydney time to highs over US$59 before easing back to US$56.23. There are PLENTY of traders geared up for this bounce when it comes - let's see how quickly the price turns once a bit of consolidation prepares the market for a turnaround. But that hasn't come yet, so traders should still be cautious of prematurely entering a long trade in oil.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: New Zealand GDP just out at 3.2% vs. 3.3% expected, Japanese asset purchase data at 10:50am, US jobless claims out at 12:30am, all Sydney time.

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