GoldilocksOne down, two to go. And what did we hear from the reserve central bank?

Well in a sentence they do not want rates to rise too fast or too slow…it has to be just right.

Well, we have been here before a careful handling or the options careful assessment of forecasts and overall all good news for the economy.

So Hawkish, right? No. It is not now as simple as that.

Chairman Powell actually acknowledged that they were approaching the goldilocks inflation level, so they may soon reach neutral policy. That is to say, no more rate hikes because the goals are achieved. That is quite dovish, even if you accept the growth optimism that was described..

There is concern over trade policies but they do not see them impacting policy…yet. As for wages which have been stubbornly subdued, there has been a small advance but Powell saw the muted effects as a ‘puzzle’rather than a mystery!

Then there is a flattening yield curve…that is because the short end is used to fund fiscal policy…the longer end might, as Powell suggests, indicate the end of tightening (normalisation)

So now to the reaction.

Equities fell concerned about the 4th rate hike and maybe also the talk of trade war concerns:

sp T 2018 06 14 0851

 

The USDX has fallen since the decision (dovish), equities have also fallen, despite neutrality on the horizon there are 2 more rate hikes expected this year (hawkish). You can see how this was all balanced by watching the reaction.

usdx t2 2018 06 14 0845

Gold also advanced as the USD fell.

Gold T 2018 06 14 0846

In other news the UK inflation is rising apace. This is a real threat to the consumer economy…the currency must strengthen to protect it. Expect a more hawkish BOE but they will try to find a way to increase currency value without rate hikes as they offer a serious danger with debt levels as high as they are.

The Watchlist

It is very specific and spread over 3 asset classes. I will wait for the ECB as well as this can cause a little turbulence.

Forex:

GBPUSD

GBPUSD T 2018 06 14 0849

A long and I will wait for the break upwards, the risk-reward here is not great but there is a conservative entry as well:

USDJPY

usdjpy T 2018 06 14 0848

Again there is a conservative option to wait for the break of 109.20. However, a pullback is a short opportunity and I am watching for this today

Gold: chart above. Long opportunities only. It is in a balance so we can wait for a break to the upside. This has long-term potential for me so it is worth waiting for.

FTSE

ftse T 2018 06 14 0846

The short limit order is still in place but I am looking for the break below the range. There is good reward/risk here despite the support level below.

The EURGBP is on the list too and totally dependant on Draghi. The UK has shown the inflation trend this week so potentially bullish and if Draghi disappoints…and do not guess this (!)…then we could see a short bias here.

eurgbp T 2018 06 14 0850

I did warn of an extra busy week and that means powder has to be kept dry where the majors pairs are concerned. The GBPUSD and USDJPY are waiting for the right areas as are Gold and the FTSE and none of the longer term biases have changed. We may see some shifting around when Draghi speaks later today. Tomorrow we will have the BOJ stepping up to the plate so no respite yet!

Judith Waker