What happened last year when the FOMC tightened?

Author: Greg Michalowski | Category: Education

The last hike was on December 16, 2015

The last time the FOMC hiked rates was on December 16th, 2015 - nearly one year ago. The market was expecting the hike at the time - much like the market is expecting the hike this year.    

Last yer, the pair moved lower into December - falling from a high of 1.1492 on October 15th 2015, to a low of 1.0519  on December 3rd, 2015. The fall was 973 pips from the high to the low - a pretty big move higher in the USD. 

This year, the pair had a high in November 2016 of 1.1298 (on Election day) .  The price fell to a low of 1.0503 on December 5th, 2016.  That move lower totaled 795 pips

So each year, there was selling into the meeting month. The dollar got stronger in anticipation?  Makes sense. 

IN 2015, the price had closed the day prior to the hike at 1.0928 (Dec 15th). Earlier in that day, the price stalled against the 100 day MA (see blue line in the chart above).  That key MA was at 1.1032. So traders leaned against the MA line. 

However, the price had rebounded quite substantially form the December low at that point (the low was 1.0519 so it corrected over 500 pips).  Selling a corrective high against the 100 day MA was a nice low risk trade - especially as the price moved lower into the announcement the next day.

Yesterday, the price closed at 1.0624. The current price is well below the 100 and 200 day MAs at 1.1019 and 1.1126 respectively.  From that perspective the EURUSD is more bearish. We are lower by about 300 pips from last year, TODAY.  Moreover, we are only 121 pips from the low - not the 500 pips higher that happened in 2015. 

The market is more bearish technically this year.

Technically, last year the pair had tested a key MA line on the day before the report (the 100 day MA) and the price moved lower over the next two days by 127 pips from the prior day close, and about 256 pips from the 100 day MA line.  

Today/yesterday, the price of the EURUSD has tested the 200 hour MA. at 1.0660 level (green line in the chart below).  We remain hugging that MA line. The 100 hour MA is not far away below at 1.0609.  

So although the pair is going into the report more bearish vs last year, the traders have taken the price to a MA line that can define and limit risk above (at the 200 hour MA - green line below) AND at the downside at the 100 hour MA (blue line) at 1.0609. 

Through the news, a move above the top MA through the release will be more bullish, while a move below the low is more bearish today. .

Remember in 2015, the low in early December reached 1.0519.  That level /area and down to  1.0503 (the low from early December 2016) is KEY, KEY, KEY  for post FOMC trading on a move lower today..   

Yes, the low from 2015 went to 1.0461, but if the 1.0500 area is broken (and it stays below) that is a big bearish step.   The 1.0517-20 were swing lows from April 2015, December 2016 and again in November 2016. The 1.0503 was the low in December 2016.  .

Looking at other markets a year ago:

  • 10 year yield was at 2.29%.We trade at 2.47% currently +18 BP
  • 2 year yield was at 0.963%. The yield is at 1.153 currently +19 BP. So there has been a parallel shift in rates up about the 25 basis points that the Fed will tighten (of course rates have been much lower between then and now). 
  • S&P was at 2043. We are at 2269 currently. That is a gain of 12.24%.  The Nasdaq is up 10.26% and the Dow is up 14.59%
  • Crude oil has moved from $35.50 to $52.13 currently.  
  • Core CPI has moved from 2.0% to 2.1% currently
  • PCE core YoY is at 1.7% vs 1.4%
How about the USDJPY? Where was it in 2015?

On December 15th, the USDJPY closed at 121.64. The price moved to a high of 123.52 on December 18th before starting a prolonged bearish move to the June 2016 low of 99.02.  The current price is much lower at 115.05.  That pair is trading above the 100 week MA at 114.66. The low this week stalled just above that level at 114.71.