What Hangs in the Balance?

BIG ONE - There isn't a lot going on with economic calendar again today and most of the price action will probably revolve around speculation into tomorrow's highly anticipated Fed decision. Fed decisions are always a big deal, but this one takes on added significance with the market trying to figure out if the Fed will once again let down forward guidance and scale back calls for additional rate hikes this year, or if the Fed will keep with its guidance. By most accounts, the Fed will hike tomorrow. However, a slowdown in data this year, coupled with ongoing subdued inflation has been making the case for another guidance failure increasingly compelling. 

SIX REASONS - At the same time, there have been whispers making the rounds that the Fed will go ahead with plans to keep hiking this year. There are six main reasons for this view in my opinion. 1) Economic data hasn't been awful and still arguably justifies a move to higher rates. 2) While inflation isn't an issue right now, it has the ability to shoot up super fast and falling behind the inflation curve poses a big risk. 3) At this stage in the game, accommodative monetary policy has fueled equity markets so far that the prospect of lower for longer opening a continued surge in disconnected equities is not something the Fed wants to worry about given the risk that this will create an even bigger and more dangerous bubble than the one we're already in.

LAST THREE - 4) If the US and global economy go through another downturn, there will be very little the Fed can do by way of accommodation with rates already as low as they are. As such, it could be better to raise so there is room to lower if need be.  5) Markets have been dictated by Fed policy for far too long and the central bank needs to get things back to a place where investors can stand on their own two feet. 6) This experiment of super easy money that was initiated in 2008 has yet to prove itself and there are doubts as to how effective we can truly say the strategy has been without seeing the removal of such policy. And so, there is a growing fear that at this point, it would be best to end the experiment as a means of finding out if it actually had a legitimate impact on the real economy. 

LEFT FIELD - Of course, all of this is speculation at the moment and we will have to wait to see how it plays out. I would add one more case for the Fed to keep with guidance, though this one is more in the conspiracy camp and not really all that credible. I only bring it up because it is interesting. We all know there's been a lot of harsh talk out from the President relating to the Fed. We also know the President is looking to push a soft US Dollar agenda via protectionist policy. So wouldn't it be interesting if as a way of sticking it to the President, the Fed kept with guidance for additional rate hikes, not only to strengthen the US Dollar, but also to open a significant sell off in US equities, two things that would give the US administration a major headache. 

A bad day of trading should be no different than a bad day at another job. Via @joelkruger

PSYCHOLOGY - I'll end today's update with some psychology. I have gone over this lesson many times in the past but it never gets old and at a minimum, should serve as a welcome reminder. The lesson is about proportionality and making sure that our emotional reaction to trading is no different than an emotional reaction someone would have in a regular day job. I can't tell you how many times I hear about traders sick to their stomachs because of a position that is ruining their life. It's absolutely critical you think of trading the same as you would that day job. People at regular day jobs have bad days and come home in bad moods. But it doesn't ruin their lives and they can shake it off. And so, when trading, you need to make sure your bad day is proportionate to the emotional response of someone having a bad day at that regular job. If you do this, it will be a major game changer. 

It Hasn't Even Started

I'm looking for quite a bit of USD weakness in the months ahead and right now...


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