FOMC Minutes: United We Stand, Divided We Fall

This phrase has been used very often as a teaching tool for kids to understand the importance of staying together. However, this proverb seem apt to describe what we’ve seen yesterday. From the FOMC meeting minutes that was released, we learnt that the Fed committee has became much more diverse in their opinions regarding what to do with QE. Granted in 2012 the Fed has always had 1 or 2 lone voices speaking out against easing policies (Lacker we are looking at you), but generally, market can always count on Fed to vote for easing policies, however that surety is shaken with “several” Fed officials saying that they should be prepared to vary the pace of the asset-purchase plan, rather than sticking to current $85 billion-per month rate.

This in itself is not an issue, as the previous Fed minutes have already hinted that we could see QE tap being plugged this year, with some Fed watchers speculating that the plugging may come as soon as mid 2013. The problem we are facing now is that there isn’t a finalized plan of action on how they want to go about doing it, with individual members seemingly having their own opinions and ideas with regards to when and how. The minutes recorded numerous proposals If there is one thing we know about the market, that would be the market does not like uncertainty, and traders and investors showed their displeasure by recording the largest S&P decline in 2013 in respond.

S&P 500 Futures Daily Chart


Price has broke from the rising channel as a result from the sell off. Before the FOMC minutes, price was already trading lower due to the sharp fall in Crude Oil spilling fears over to the rest of the markets. The current slide also open up bearish signal using Stochastic, with readings poking below 80.0 and crossing signal line along the way. Indeed, from the technical point of view, a pullback was long overdue and this FOMC minutes could be the catalyst that we need to see some pullback convictions from the bears.

That certainly does not mean that bears will have a free reign of market direction, as current trend is still up. More pertinently, 1,500 level remains strong despite the sell off, unlike DOW which has failed to hold onto its own 14,000 level time and time again. This suggest that there is still some resilience within bulls to put up a good fight. Fundamentally, the FOMC minutes did not really give us any dovish surprise unlike the one in January, and hence it will be surprising to see fears entering the market just on Fed’s apparent divisiveness alone (then again, we are assuming a rational market which may not hold all the time).

One thing is for certain though, both minutes in 2013 has shown that the dovishness of Fed that the market has taken for granted may be at risk. That may not necessary be able to derail the markets as price remained lifted post Jan 8th (FOMC minutes release) to break 1,500. Similarly, if traders continue to focus on the economic well-being of US, we could see markets forgiving the bickering Fed to push asset prices higher once more.

More Links:
EUR/USD – Euro Loses Ground, Tests 1.34 Line
USD/CAD – Loonie Retreats after Weak Canadian Numbers

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