Article by ForexTime

October is typically a volatile month for global markets, and so far this one hasn’t disappointed. Trading is likely to remain nervous and choppy heading into month-end, especially as the FOMC looms, and growth concerns will add to an already jittery climate complete with Ebola and terror worries. Also, investors will have a BoJ meeting to dissect, along with myriad date releases to analyze.

The FOMC meeting, which is scheduled for Tuesday, Wednesday, is the major highlight of the week. The Fed is widely expected to end QE, cutting asset purchases by the remaining $15 billion. Neither that act nor the policy statement are likely to suggest a more hawkish stance. Indeed, it will be interesting and educational to see if policymakers actually spin the statement into a slightly dovish direction to offset.

The FOMC will likelymaintain its “considerable period” language which has been a key in forward guidance since September 2012. However, since the Yellen snafu at the start of her tenure, with all of the diverse chatter regarding the estimated timing of rate lift-off, and reiteration that policy moves are “data dependent,” that one phrase should have little meaning now. Nevertheless, it will be closely monitored and analyzed.

As for the other key phrase, “significant underutilization of labor resources,” it could be retained, despite the improved employment situation, as various components in the LMCI are still underperforming. Lastly, on inflation, the statement will reiterate that it is still below target, but expectations are stable. The Fed is not likely to mention the dollar specifically, even though it will obviously be part of the discussion, as was noted in the last FOMC Minutes.

After losing ground for most of October, the dollar gain traction against the Yen at the beginning of last week and recaptured the 10-day moving average creating a bull flag pattern.  Momentum has turned positive for the greenback as the MACD (moving average convergence divergence) index generated a buy signal.  This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The index moved from negative to positive territory confirming the buy signal.

Article by ForexTime

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