All Blogs / Analytics & Forecasts

'We place a 25% chance of a hike, and 75% for no hike' - Citi

17 September 2015, 06:11

Sergey Golubev

1 006

Citigroup made a forecast for Fed hike for today in technical and fundamental ways:

"Citi’s baseline is for a 25bps hike, but there remains considerable scope for surprise, as well as hifting communication to play a role. Ultimately we think the decision boils down to how the FOMC sees market conditions, and whether the recent volatility could lead the FOMC to temporarily postpone hiking."
"In our view we place a 25% chance of a hike, and 75% for no hike. Still, the risk/reward favors a more hawkish outcome. We think the next most likely possibility would be for the committee to signal the October meeting as live, a hawkish outcome for the bond market."

From technical points of view

If September hike - Buy USD/CAD
"Initial reaction is clearly USD positive through the rates channel. Distance on USD rally depends on how market extrapolates the tightening path (after SEP/Yellen signals). We like USDCAD higher under a Fed hike, signaling a more hawkish reaction function, supporting the yield differential and dampening the external demand impulse to Canada."

If September skipped - Buy AUD/JPY
"If September is skipped, the reaction in FX is going to depend on the motivation. If it was market volatility, EM uncertainty and the USD, then October is more likely to be in play. Instead, if its inflation and a view the NAIRU is considerably lower, 2015 could be off the table."

#usdcad, FOMC, audjpy, Citi

Source

Sergey Golubev 2015.09.17 13:01 #1

Forum on trading, automated trading systems and testing trading strategies

Press review

Sergey Golubev, 2015.09.17 12:57

How To Trade The FOMC - Credit Agricole (based on efxnews article)

"USD longs funded in low yielding currencies like CHF seem still attractive in our view. A Fed hike could boost the USD but may not necessarily trigger a sharp risk selloff. As a result the likes of EUR, CHF and JPY need not receive a massive boost. We like being long USD against CHF in particular because the positive correlation between CHF and risk aversion has been weakening recently."
"If the Fed doesn't hike and signal a lower glide path for Fed fund rates while downgrading its core inflation and unemployment projections, chances are that risk appetite could recover some more. While we could see investors unwinding decoupling trades and USD underperforming, we doubt that this will be sustained as markets will continue to see any decision to keep rates unchanged as delaying the inevitable. Under this scenario, the USD may lose some ground against EUR, CHF and JPY initially but the underperformance should be ultimately capped by the prospects for more policy divergence (eg more ECB QE) and resilient risk appetite. We think that USD/CHF should hold up well as EUR appreciates against both CHF and USD. When it comes to risk-correlated or commodity currencies, we doubt that any of them could regain ground on a sustained basis, given the lingering risks from China and the Fed."
"GBP could be among the more resilient currencies today especially if the Fed boosts investors’ demand for decoupling trades. Indeed, accelerating wage growth in the UK and increasingly hawkish rhetoric from the BoE has helped GBP regain some ground of late."