It’s that time again — when the FOMC does its level best to convince investors algos that they should be optimistic buy more equities.  Lately, this has meant a not so subtle message that rates are normalizing rising ever so slightly, inflation remains under control disappointing and the future looks strong good enough.

We touched on the inflation scam in yesterday’s post: PPI Tops 3%.

The primary culprit: gasoline prices, which BLS officials say increased 15.8%.  Imagine what PPI would have registered if they’d used EIA-fabricated data (+17.4%) or the actual increase over Nov 2016 of +20.3% [see: Again, With the CPI Games?]

Today, thanks to the miracle of seasonal adjustment, we learn that consumers experienced a mere 7.3% YoY increase in the price of gasoline, yielding a YoY CPI increase of only 2.2% (core came in at 1.7%.)

This assessment, of course, flies in the face of virtually all the data as well as every consumer’s experience.  But, otherwise, it’s sound as a pound.

The important takeaways: inflation is not a problem (unless you care about facts) accommodation should continue (because we all know what would happen without it), and rates should gradually increase (even as the curve collapses, because they need a higher perch from which to reduce rates the next time markets collapse.)

continued for members…

The DXY and USDJPY are backing off their overnight highs.  USDJPY reversed off its channel top, but has potential support at the red TL and channel .786 line.  For those who shorted yesterday, this is (at least) a potential bounce point.

I’ve also added an interim bounce point for EURUSD at the white channel bottom and SMA200.  If Yellen comes off hawkish, it’s easy to imagine EURUSD plunging to the 114.26-114.90 level — even if only a quickie.

CL and RB continue to settle lower — essentially being scolded for having been so problematic. VIX levitated overnight, so it has some room to decline if it’s needed to prop up stocks.

UPDATE:  11:15 AM

A little fine-tuning on the RB chart puts the initial support at 1.6526 and the secondary at 1.6306 (although it could be delayed for a few days after a bounce at the .618.  The .786 at 1.6016 remains an appealing target for later in the month or even in early Jan.UPDATE:  1:30 PM

RB is knocking on the door, a few pennies away from the .618.  I’d take profits here at 1.6534 or at least tighten up your stops.  There’s about a 50:50 chance of it dipping to the  SMA200 (1.6305) today or tomorrow.  If it doesn’t, we should see a bounce here that backtests the cloud bottom at 1.6884.  Personally, I’m inclined to give it a little rope and see if it can dip a little more today. 

But, if it bounces, it could take another week or two for it to reach the SMA200 (if it does.)  The red TL officially crosses the white channel bottom at 6:15am on Dec 19.  The SMA200 (if it doesn’t change over the next two weeks) crosses the white channel bottom at 4:15am on Dec 21.I should also point out that the rise from 1.66 last Wednesday qualifies as a near-.618 bounce.  That is, it was close enough to the .618 to count as the Point B in a Gartley or Bat Pattern that results in a dip to the .786 (1.6016) or .886 (1.5712.)  If RB drops through 1.6526, it could be headed toward either one.

UPDATE:  2:40 PM

The FOMC statement offered no significant surprises — another rate hike now and three more in 2018.  They seem uncertain of the outlook, but believe real GDP will continue to grow at 2%.  The DXY has dropped through the SMA50 but is close to support at the SMA10 and white channel .786 at 9393.524.  If it drops through, GC’s bounce up through the yellow TL (1250ish) should hold and confirm a long position.  USDJPY got a bounce at a longer-term channel line and is back to the support of the SMA10 and red TL.  For those who shorted yesterday, I’d cover on any bounce back above the SMA10.

RB has reached the channel bottom and should bounce here.  If it doesn’t, it has support just below at the SMA200.I’ll be back after the close and the press conference with further thoughts.

UPDATE:  10:20 PM

Not much to add to my earlier comments.  SPX closed on a bit of a down note, but ES has already erased those very small losses.  DXY found support, but USDJPY still has a little ways to go before any real test shows up – at the SMA20 but, more importantly, the SMA200.  Gold says DXY is going to drop through both. RB closed back above the .618, but as discussed above the bottom might not quite be in yet.And, keep an eye on VIX.   I’d take a flyer on a long position if it pushes through the SMA60 200 (10.39ish) tomorrow.GLTA.