Forex Signals Brief for September 20: How to Profit From Quantitative Tightening
Rowan Crosby • 3 min read
It’s Federal Open Market Committee (FOMC) day, and I want to put this question to you …
If Quantitative Easing (QE) is bullish, then is Quantitative Tightening (QT) bearish?
To me, that’s the obvious question that we’re faced with as we head into this installment of the FOMC. It has been suggested that this meeting of the FOMC will bring about the start of the Fed tightening its balance sheet.
Since the beginning of QE, we’ve seen a huge rally in stock markets. Bond markets have been bought up to the point that we’re getting negative real yields, and of course, there was a big move higher in gold.
Now if all those things happened when there was QE, shouldn't the opposite happen when it’s reversed? It could be suggested that markets have now stabilized, and the economy has turned things around. Sure bond yields must rise, but what does all the mean for equities and gold? Like I said in yesterday's brief I suspect we are due for a correction in stocks. I am interested though in exactly what QT might mean for gold.
This is certainly an interesting day for traders, so stay glued to the screens as we might have some action on our hands!
Top Economic Events Today
EUR – German PPI
PPI for Germany is due to out today at 6:00 GMT with analysts predicting a slight decrease from the prior period. PPI is an indicator of the cost of goods sold by manufacturers.
GBP – Retail Sales
The retail sales report is out at 8:30 GMT and analysts are predicting a slight decrease compared to the previous period. The pound has been a strong performer recently, and a beat could spark a big rally.
USD – FOMC
The key for today is clearly the FOMC with the interest rate decision and statement to be released at 18:00 GMT with the press conference to follow at 18:30 GMT.
SPX – FOMC to Rock Equities
As I discussed earlier, what comes out of the FOMC today could well have a long-term impact on markets. Equities to me look poised to fall back from their highs. However, in the short term, I know better than to try and predict what may or may not be said by central banks.
SPX – Daily Chart
SPX – Trading Plan
I’m still very much looking to sell above 2520. We got a small and very muted increase in yesterday's trade, and I would expect volatility today. If we get a spike to the upside I will be wanting to sell ahead of a longer-term move lower.
Gold – Longer Term – QT
On the surface, you would think that QT is bearish for gold. However, if everyone knows that QT is coming then that suggests to me that the market has priced it in. I’ll be interested to see how gold reacts post-decision.
Gold – 240 min Chart
Gold – Trading Plan
I feel that gold has absorbed much of the bearish news this week and has weathered the north Korean sell-off. I’m looking to go with the early momentum and see if we can capture any movement in either direction as ultimately we can’t predict what the FOMC might be.
It should be a big day on markets with a real volatility spike if we get something unexpected. Stay tuned for our analysis signals as they will be across all of the developments of the day.
Have a great one guys!