Market Update – November 7, 2017

Market Update – November 7, 2017

The Forex market seems to wait for something that just doesn’t come. It is the only explanation why ranges dominate and, with more time that passes, the less likely it’ll be that the market will make significant moves until the end of the year.

 

By now we know what the major central banks did this fall. Moreover, traders also know what they’ll do for the rest of the year.

 

And, even though the changes are significant and essential, the market fails to break ranges. EURUSD stays in a very tight range; the USDCAD fails to break the 1.30 and met only sellers, while USDJPY keeps a one-hundred-something-pips range for over a month. That is, despite the U.S. stock market going wild, making all-time highs virtually every day.

 

Fed, the Quantitative Tightening, and the December Meeting

 

The Federal Reserve of the United States is the only major central bank in full swing tightening cycle. While many may argue with the fact that the Bank of England raised rates to, that’s not a tightening cycle.

 

What the Bank of England did was a one-time hike, a forced hike, and the bank was careful enough to communicate that to the market.

 

It’s not the same with the Fed. Not only that the Federal Reserve is poised to raise rates again in December, but the Quantitative Tightening (QT) program also keeps adding even more pressure in the same direction. The dollar fails to make significant advances.

 

The PCE (Personal Consumption Expenditure) looks weak or barely flat, still. But this is one of the favorite ways for the Fed to measure the value of money and to decide on rates.

 

However, the stock market was resilient to any interest rate hikes. The rule of thumb goes that the stock market suffers when a central bank raises rates. Not this time!

 

Despite all hikes so far, the DJIA (Dow Jones Industrial Average) stays at elevated levels, making new and new all-time highs. The same with the other indices and this gives the Fed more room to hike rates soon.

 

Conclusion

 

While the QT and the potential rate hike gives the dollar a boost, these are known facts. The market couldn’t be surprised unless something else comes into the picture.

 

The tax reform might be one thing, but even that one isn’t a surprise anymore.

 

As such, all we must do is to place pending orders at the edges of recent ranges and wait for a break. It may be that they won’t break until 2018.

 

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