FUNDAMENTAL ANALYSIS
FX balance sheet is $4.5 trillion.
Chart 3. Dollar Index - 1 year punished the dollar
every move. A
look surprise at the Source: Bloomberg index on Bloomberg index which measures
the difference between the actual number and the forecast number, brings a downward trend to the fore. This is the kind of trend which you certainly do not want to see if you are a dollar bull. However, the wind of change has started to blow more recently especially during the month of June. The dollar index has changed its direction to the upside while the economic surprise index is still trading towards the downside. This is an alarming affair, because
it represents a disconnection between the
market
economic data. Finally, keep in mind that
it
not about hiking the interest rate which is the issue here because we do know that
and is the Fed does
think that they can still squeeze out another interest rate hike this year. The dot plot also confirms that we could see the same amount of rate hikes next year.
The matter which is hunting the market and the dollar is that the Fed is also going to trigger a strategy under which they will reduce the size of their balance sheet. The current size of the
Investors do feel that projecting the size to which the new balance sheet will shrink to is like throwing darts in the dark. This is because the Fed didn’t really provide any meaningful information to date in relation to the new size of the balance sheet which they think will be acceptable. All that we know is that it is going to be below the current level, but above the mark before the financial crisis. Also, no date has been provided in relation to when they will get this project off the ground. This is too vague and confusing.
The bottom line is that the Fed needs to pay more attention to the data and just saying that their
actions will closely anaemic retail and
the health of the economic data is not enough.
In order for
follow the
consumer
sentiment to improve, the wage growth needs to bounce higher in order to encourage consumers to spend more. Therefore, I hold the view that the economic weakness is making the outlook cloudier and the Fed should consider this more carefully rather than beating the drums that the weakness is transitory.
Naeem Aslam Chart 4. Implied Fed Funds Target Rate Source: Bloomberg
Chief Market Analyst TinkMarkets
FX TRADER MAGAZINE July - September 2017 19
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