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EURUSD & Indices Rally on ‘Fed Day’, DAX 30 rises Despite Bad News for the German GDP & Oil Prices Climb as U.S. Inventories Drop

EURUSD, Indices rally on Fed Day

Alongside indices in the United States, EURUSD traded higher on Wednesday, in anticipation of the Federal Reserve policy meeting.

Many expect that today’s “Fed Day” announcement will see the Central Bank give firm signals on Tapering, as it looks to scale down on its bond-buying programme.

Although markets also expect interest rates to remain unchanged, many will be looking for forward guidance, and potential shifts in the Fed’s stance of no hikes until 2023.

💡Do Fed Days make the market more volatile?
Fed days have been tilting bullish for the stock market intraday since 1994, at least until the Fed instituted a press conference following the release of its policy statement, which it began to do under Ben Bernanke in April of 2011.

Since the start of the news conferences, which kicks off at 2:30 p.m., a half-hour following the usual release of the central bank’s statement, the market has been seeing intraday weakness.

This comes as inflation rates in the United States are growing to multi-year highs, with these expected to reach close to 4% before the end of the year.

As of writing, EURUSD hit an intraday high of 1.1744, with the S&P 500 trading 1.21% higher.

DAX 30 rises despite German GDP forecast dropping

In Europe, Germany’s DAX 30 was trading higher, despite forecasts showing that GDP growth could be less than initially expected.

Data released by the ifo institute, showed a reduction to its 2021 forecast for Europe’s largest economy, moving growth projection from 3.3% – 2.5%.

💡What can be expected in Germany’s Economic recovery
The reduced growth forecast also shows that Germany’s next coalition government will inherit a still-fragile recovery from Chancellor Angela Merkel who is stepping down following a Sept. 26 election, after 16 years in power.

The adjustment comes as Germany’s recovery was dented by the rapid spread of the Delta variant, which led to tighter restrictions on travel, as well as the reopening of businesses.

Despite this, the report also showed that 2022 growth could compensate for this year’s shortfall, with its GDP projections rising from 4.3% – 5.1%.

The DAX 30 closed 1.03% higher on the news.

Oil prices up as U.S. Inventories drop

Oil prices were up for a second consecutive session, helped by data showing that crude inventories had fallen in the United States.

Data released by the Energy Information Administration reported that inventories had dropped by 3.481 million barrels last week, after being expected to fall by 2.44 million barrels.

💡The U.S. and its effects on oil prices
Although the U.S can impact oil prices due to the fact that its a key player in oil production, most of the crude oil reserves in the world are located in regions that have been prone to political upheaval or in regions that have had more oil production disruptions because of political events. Most notably the Arab Oil Embargo in 1973–74, the Iranian revolution, the Iran-Iraq war in the 1980s, and the Persian Gulf War in 1990–91. 

This data saw WTI Crude rise to an intraday high of $72.38, edging closer to its long-term resistance level of $72.97.

Inventories of Gasoline rose however, coming in at Gasoline 3.475M, after being forecasted to decline by 1.067M barrels.

Quote of the day – “The elements of good trading are (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.”

– Ed Seykota

Eliman Dambell

Senior Market Analyst