Tomorrow will see the FOMC meeting and here are some of the key factors to consider going into the event. First of all, where are we at regarding tapering?
Last jobs print means a September taper is highly unlikely
The August jobs print came in +500k below expectations at +235K vs +750k expected. One of the key focal points for the fed is getting jobs back up to pre-pandemic levels and this print meant the Fed is far less likely to announce tapering in September. Take a look at the recovery needed to get jobs back on track.
So, the bottom line here is that the Fed are unlikely to announce a September tapering due to the last lower jobs print. However, the dot plot projections will be in key focus because it will signal how quickly the FOMC actually see interest rates rising. At the moment expectations are for a 2023 hike with 13 members looking for a hike as opposed to just 7 looking for a 2022 hike.
The hawkish and bearish outcome to look out for
The most hawkish outlook from the meeting would be if the Fed surprise markets and announce tapering. This is not expected as the Fed have said they will signal it in plenty of time. So, if they did taper then expect USD strength, EURUSD weakness, gold falls, and stock falls.
The most bearish outlook would be if the Fed repeat concerns over the job market. If the Fed hint that tapering now would be too early and the dot plot stays unchanged with a 2023 median hike then this should support gold, support stocks, and send the dollar index lower.
Jobs print on Oct 08 will be important
Unless there is a surprise hawkish or bearish slant this Wednesday the event could underwhelm in terms of opportunities. Arguably, the greater opportunity for traders will come from the October 08 jobs data. If this week’s meeting is more of a holding meeting then acute focus will be on jobs as a proxy for the Fed’s next move. So, have that in mind.
Also, one chart that is very interesting right now is gold. If the Fed take a very bearish stance then upside in gold from this strong bullish pin bar on the weekly chart is one technical set up to be aware of. However, if the Fed take a hawkish stance then expect gold to fall lower and that would invalidate this technical outlook.