On Friday, 26 May, a series of US economic indicators trickled through the market, reflecting higher GDP for Q1 2017 and sketchy GDP growth forecasts for Q2 2017. Currently, Q2 growth is expected to continue at a pace of 2.2%. As at May 26, 2017, the GDPNow forecast indicates a Q2 2017 growth rate of 3.7%. This is sharply lower than the May 16, 2017 rate of 4.1%. A big reason for the pullback was the drop in Q2 residential investment growth to 3.1%, from 8.3%. Meanwhile, the Federal Reserve Bank is moving ahead with plans to unwind its vast balance sheet which swelled after the 2008/2009 global financial crisis. The Fed has been aggressively buying up treasuries, bonds, and other securities to stave off a recession and keep inflation in check.

The president of the San Francisco Fed, John Williams is confident that the Fed will have a much leaner balance sheet by 2022. Currently, the Fed owns assets worth $4.5 trillion, and selling off those assets needs to take place at an acceptable pace to prevent adverse reactions in the economy. Back in 2013, markets did not react well when Fed Chairman Ben Bernanke suggested that a tapering of asset purchases would occur. Precisely how big the Fed’s balance sheet will be after these changes is unknown. Analysts are expecting the Fed to shave off up to $2 trillion by the end of the tapering process.

How will the Fed React in June 2017?

The New York Fed is expecting annualized growth to take place at 2.2% for Q2 2017. This is marginally lower than the forecast figure, owing to declining new home sales and a plunge in durable goods orders. Goldman Sachs analysts also lowered their expectations for GDP growth, with a forecast of 2.6% versus 2.8% for the current year. The big question is how these revised forecasts are going to affect the Federal Reserve Bank when it’s FOMC meets on June 14, 2017. The latest data suggests that there is now an 84.2% chance of the Fed raising interest rates at its next meeting. This is up from 78.5% on May 22, 2017. If the Fed acts, the federal funds rate will be in the region of 1.00% – 1.25%. Increasing interest rates have a spillover effect on all aspects of US economic performance.

Trading Opportunity #1 USD/JPY Currency Pair Hinging on NFP data

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The USD/JPY pair is currently trading at 111.335. The greenback has gained ground against the JPY over the past 5 trading days, but only marginally so. This pair spent the better part of the week in a consolidation mode, correcting from a prior support level of 111.09. The JPY is regarded as a safe-haven currency when geopolitical uncertainty hits. It is particularly sensitive to volatility in Asia, and rallies in much the same way as gold. For this currency pair however, it is the performance of nonfarm payrolls data (NFP) that is going to drive the dollar higher or lower. Technically, this pair looks bearish.

There is no directional strength to the pair, and there is little buying interest among traders. With US markets closed for the Memorial Day weekend, the pair remained flat from Friday through Monday, 29 May 2017. Since the start of May, this pair has dropped 414 pips, hitting a low of 110.23. The USD can be bolstered against the JPY if NFP data, and ISM Manufacturing data offers support. Overall, the net long position on the pair, according to IG Client Sentiment, is hovering around 62%. Strong positive readings indicate a bearish bias, while strong negative readings indicate a positive bias.

Trading Opportunity #2 – Weak Gold Demand Drives Prices Lower

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Gold is currently trading at $1266.80 per ounce, down 0.06%, or $0.80. The performance of gold over the past 30 days has been marginally positive, with gains of just $1.50 per ounce. For the year to date, gold is in the black with gains of 6.47%. Gold trading has been rather flat heading into June, owing to decreased demand among investors, retailers, and jewelers. Gold naturally prospers when geopolitical uncertainty sets in. Such is the case with comments made by President Trump at the NATO gathering, tensions with North Korea, or terrorist attacks around the world. One of the most important drivers of the gold price is the gold-backed ETF, SPDR Gold trust (GLD). The total value of gold in its holdings remained steady at 847.45 metric tonnes. Binary options traders will be seeing significant sideways trading of gold, with plenty of rangebound trading.

Trading Opportunity #3 – JPMorgan Chase & Company Trending Bearish

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JPMorgan Chase & Company is currently trading at $85.31 per share. Over the past 5 days, the stock has eked out a 0.68% rise, but its year to date performance remains poor at -1.08%. Meanwhile, Thomson Reuters analysts are increasingly bullish on the stock, shifting from short positions to long positions between February and May. On a scale of 1.0 (strong buy) to 5.0 (sell), the stock is rated at 2.3. Another positive aspect to consider as a binary options stock trader is actual versus estimated earnings. Between Q2 2016 and Q1 2017, JPM has outperformed expectations.

In other words, a positive earnings surprise was generated during each successive quarter. This results in a boosted share price. Further, these upgrades are evident with the latest ratings changes from Guggenheim in April 2017 when JPM was upgraded from a neutral to a buy. If the Fed moves ahead with its expected rate hike in June, this will also trigger a rally with JPM and other banking stocks. Binary options traders can look forward to a rising stock price (above the 50-day moving average of $86.59) in the near future, in line with expectations about bank stocks in general.

Trading opportunity #4 –How Now Dow?

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The Dow Jones Industrial Average – the Dow 30 – is currently holding above 21,000, at 21,070.15. The year to date return of this premier index is 6.67%, with a 1-year return of 20.96%. The index was trading lower on Friday, with just 13 of the 30 members up. Binary options traders wondering which way to go with the Dow Jones need only look at its performance since 17 May when it was trading at 20,606.93. Strong bullish momentum has carried the index over the past 2 weeks, despite the flattening out in recent days. All the current metrics, trends and patterns indicate a strong upward bias, and this is precisely how binary traders should approach this index. A Fed rate hike will certainly impact the index, as will the release of important US data like nonfarm payrolls this week.