Janet Yellen explicitly stated the possibility of an interest rate hike around six months after the end of quantitative easing. The statement push USD higher across the charts.

Yesterday's FOMC meeting surprised market players by an unexpected turn of views. The new Fed's governor that was said to be a dovish, Janet Yellen, explicitly stated the possibility of an interest rate hike around six months after the end of quantitative easing. The statement push USD higher across the charts, surged against most major pairs.

Greenback

 

Good News For Greenback

As expected, FOMC decided to cut another 10 billion USD from its monthly project and shifts its forward guidance by discarding the unemployment benchmark. What unexpected from yesterday's meeting is that interest hike may happen sooner than later. If we are to assume that QE will be tapered off by October or November, then we could expect interest hike around April or May, far sooner than prior estimates at second half of 2015. Beside of Yellen's statement, USD also surged on account of Fed Officials' optimistic outlook.

Most of Fed officials in the meeting yesterday expected the current 0.25% interest to be at 1% by the end of 2015, which points at the possibility of a gradual increases. That was supported by economic growth that was projected at 2.8-3.0% this year and 3-3.2% on 2015. While unemployment is expected to drop to 6.1-6.3% by the end of this year and drop again to 5.6-5.9% by the end of 2015. Inflation measured by Personal Consumption Expenditures Index (PCE Index) is also projected to rise 1.5-1.6% this year and 1.5-2.0% on the next, dismissing the speculation that US may enter deflationary period.   

Ray Attrill of National Australia Bank was quoted by CNBC said that as long as future US economic data support the Fed's confidence, greenback should go higher. Or else, it could push USD back down. But Attrill is optimistic that US data are going to be better, and therefore that means the dollar gains should be built on.

Fed's projection set USD bullish expectation and instantly lifted it against all of its counterparts in major, gold, and even plunged Asian stocks. Greenback rivals weakening also means that the overpriced Euro is directed to go back to its normal rate around 1.3800, alleviating concern that European Central Bank may intervene to chop it off as high Euro is deemed undesirable. Euro bulls is unstoppable, but at least, the speed has slowed considerably.

 

China Debt Bomb Ticks, Ukraine Surrendered

Greenback could take over the chart so easily due to the fact that other factors that burdens the market has faded. China debt bomb is still ticking, but it doesn't seem as precarious as before. On the other hand, it seems Ukraine has surrendered Crimea to Russia. The two issues are not as stormy as they were, but we can't discount them carelessly.

One more financial institution lower their expectation of China growth. After Merryl-Lynch, Barclays, and Nomura, now Goldman Sachs trim their expectation from 7.6% to 7.3%. Recently emerged defaults and some other occurence could negatively affect short-term growth. Nevertheless, Goldman Sachs has said that potential contagion risk would still be under control. There will be more companies suffer the same fate as Shanghai Chaori, but Chinese Government could be expected to prepare bailout directly or indirectly.

If a happy ending is possible for China, the same can not be said about Ukraine. A day after Russia announced the annexation of Crimea, Ukraine Government plans to evacuate their soldiers from the peninsula to mainland. Meanwhile, US and Europe's half-hearted sanction on Russia is accepted wholeheartedly by the market. Politically wise, Russia have to be sufficiently punished in order for it not to be a precedence. But economically, it may prove to be harmful for countries with relatively close trade relations with Russia, including German. Tendency to prioritize economic interest above political stance is the reason why the market peacefully go on as usual although blood have been spilled in Crimea.