FED lifts interst rates

15 December, 2016

The market has been somewhat stunned today as Janet Yellen announced after the FOMC that the FED was raising rates by 25 basis points to 0.75%; this was in line with the market expectation that the FED would finally look to raise rates in December. However, the rate rise is somewhat unexpected in the sense that the FED has been dovish for some time and is starting to look hawkish. The rate rise is in line with the inflation expectations that the FED has also been looking out for 2%, and also in line with the labour market expectations which have continued to improve. With the market now taking on board the rate cut the USD has rise in line with expectations, but the expectations for future rate cuts are likely to diminish given the fact the FED is looking to slow down in the wake of political change to adjust to the new fiscal policy that may be laid out by the Trump presidency.

For the S&P 500 we saw a quick retreat on the charts as a result of the rate rise, and for some time we have been talking up the reality of it happening. Obviously the fall was not massive, but rather a minor adjustment and with the FED actually looking dovish in the near future we could see the bulls still look to take control. So far resistance is likely to be found 2276 and the next level above this at the psychological level of 2300. Any retreat further on the charts is likely to find dynamic support at the 20 day moving average and also at the next major level which can be found at 2246 and 2211, both of which are likely to stifle any bearish movements lower.

One of the biggest losers on the back of the FED movement has been the gold markets which has so far suffered under the higher USD and the fact that many investors now believe with Trump in power we will see a boost to the economy. The reality has been far from satisfactory though, with gold trending down the charts aggressively, and shrugging of any fears of an increase in inflation caused by the spending that many had expected from Trump. It would seem more than ever that gold bugs are doing it tough, and could in fact be in for another round of toughing it out on the markets.

On the charts gold has fallen all the way down to a strong support level at 1141 in an increasingly bearish trend line that looks set to stay. Beyond this key level the next level of support is likely to be found around 1109 and could be an area we see gold look to take a breather. Gold has also previously reacted quite strongly to the 20 day moving average and this could easily come back into play as dynamic resistance in the event that gold swings higher. 

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