This week is likely to be a huge week for the global market. More specifically, indices and commodities are likely to see some incredible volatility throughout the week. The reason for this is that on Wednesday, August 17th, we will be hearing the meeting minutes from the August FOMC meeting. Today, we'll talk about why this is so important, what it has to do with regard to commodities and indices, and what binary options traders should be watching for throughout the week. So, let's get right to it…
FOMC Meeting Minutes Will Be Released On Wednesday
As mentioned above, on Wednesday, the FOMC meeting minutes for the August meeting will be released. This is incredibly important as the FOMC meeting is the deciding factor with regard to what we can expect to see with regard to the USD and largely the US economy moving forward. During this meeting, Federal Reserve leaders as well as other economic leaders in the United States meet to discuss the state of the economy. At this meeting, these leaders decide to either add stimulus, take away stimulus or keep monetary policy the same.
With that said, this meeting is always important. However, right now, it's more important than it has been in some time. The reason is that the Federal Reserve said that it plans on increasing its interest rate this year. With economic conditions in the United States and around the world being overwhelmingly concerning, they haven't been able to do so just yet. Nonetheless, recently, we've been seeing promising signs from jobs and consumer spending. So, some experts believe that a rate hike may finally happen.
What This Has To Do With Global Indices And Commodities
While it may seem as though something so simple as the Federal Funds rate in the United States may not do much to global markets, that notion couldn't be further from the truth. At the end of he day, indices and commodities are likely to largely be affected, regardless of how this goes. Here's how I see it…
Indices – Indices are essentially groups of stocks, and stocks represent corporations. Movement in the Federal Reserve interest rates generally have a profound affect on corporations. When interest rates are low, we see more lending and more spending. However, if the Federal Reserve does decide to increase its interest rate, less lending and spending means less revenue for businesses. At the end of the day, this goes all the way down the line to affect stocks in a negative way. So, if the Fed does increase its rate, we can expect to see declines in indices around the world. If they keep the rate the same, the move will likely fuel further growth.
Commodities – Another thing to keep in mind here is the affect an increased interest rate would have on commodities. Commodities, for the most part, are priced using the USD. If the Federal Reserve does increase its rate, it would essentially be increasing the value of the USD. As a result, commodities would become more expensive around the world due to foreign exchange rates. This would lead to declines in demand and ultimately declines in the values of many currencies. However, if the Fed decides to keep its rate unchanged, we'll likely see further gains in the commodities market as commodities remain easily accessible around the world.
What Binary Options Traders Should Be Watching For
In the week ahead, the volatility in the indices and commodities markets is likely to be caused by news of the FOMC meeting minutes. As a result, binary options traders should be watching the story closely. If the interest rate is increased, we'll see strong put option opportunities across both indices and commodities. However, if the rate remains the same, call options will likely be in order.
[Image Courtesy of Wikipedia]