The FOMC raised the target for Fed Funds Rate by 25bps to 25-50bps. It is the first time the Fed raises rates in nearly 10 years and today will be the day marked in the history book. This start of normalization from one of the biggest central banks in the world reflects its confidence in the economy’s recovery and a belief that it will be able to withstand a gradual increase in the interest rate going forward.
Economic and interest rate forecast were little changed. The median dot point for 2016 was unchanged at the fed funds rate of 1.4% with a narrowing in the range of the dot points, implying four further hikes next year. The long run rate remained at 3.5%. The statement included more robust language on the jobs market. The 2016 unemployment rate was cut down to 4.7% from 4.8%. The growth was expected to be expanding moderately, with the median GDP forecast 2016 to be nudged up to 2.4% from 2.3%. Inflation is predicted to recover gradually and rise to 2% over the medium term, which implies that FOMC will raise rates gradually.
As this hike is largely as the market expected, the ensuing volatility was minor. Risk has already been reduced and no one seem to be entering into any new positions. After initial gains, the USD is now weaker against most currencies compared with pre-hike levels, and the long term bond yields are lower.
SPI 200 (ASX) (Z5) Intraday: rebound.
Our preference: long positions above 4940 with targets @ 5070 & 5110 in extension.
Alternative scenario: below 4940 look for further downside with 4900 & 4860 as targets.
Comment: the RSI has just landed on its neutrality area at 50% and is turning up.
Supports and resistances:
5170
5110
5070
4964 Last
4940
4900
4860
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