The day has finally arrived.

I have a few economic arguments related to the strength of the USD and what the major issues are for the FED. However, before listing these, I want to say that from day one in office, Janet Yellen has stuck to her guns on commentary. She has said consistently of late that movements in interest rates will be data dependent. In fact of late, like many other Central Bank Presidents or Governors she has shown more of a concern over DEFLATION than anything else.

Lets face the facts; there is an economic slowdown. We are bouncing along the bottom, there are NO consistencies of economic growth in the world, China is slowing down and there are divergences all over the markets to ponder.

It all comes down to one word from the FOMC statement. If PATIENT is removed the EUR/USD will be crushed through parity within weeks. I know it sounds crazy, but this statement has a lot to do with saving face. If the FED rescinds on raising rates no-one will believe a word uttered from them again and the markets will lose what it needs above all else, certainty of FED monetary policy. Uncertainty, which is what will happen if rates do not rise, this would be a huge step back for the markets. Of course, the FED can say that interest rates are still going to rise in 2015 but not before the summer.

I think she will intimate a rate increase of 0.25% to be done June or July and the EUR/USD will get crushed as a result. The FED raising rates is hawkish. The Central Bank divergences will provide a sell-off of huge proportions.

So it’s dead simple….

Not that fast….

The FED has the ultimate dilemma.

The 800lb gorilla in the room is DEFLATION.

The FED does NOT want DEFLATION as the strong USD gives DEFLATION through lower import prices on goods imported into the USA from abroad. How on earth with DEFLATION can the FED achieve its 2% INFLATION target?

So basically as I see it Janet Yellen is dammed if she doesn’t and dammed if she does.

If she raises rates like I think she will, the EMERGING MARKETS could be faced with a crash not unlike 1997.
If she doesn’t raise rates, I believe that the markets will see this as a rate cut…stocks will rally and the USD will weaken. But, this places future FED speak into the “yeah right!!” category of do you or don't you believe them in the future. This is a risk and Central Bankers do NOT like or take risks. No rate cut would say to the markets that the economic data is so poor, that it my opinion it could lead to another bout of QE…. QE4!!!

I believe that clever / smart equity market traders will have cashed out many of their positions ahead of the FOMC. Equity markets cash from the U.S. is being placed into the European bourses like the DAX. There are some U.S. investors that are mandated to keep their money in the U.S. I think they will have it in cash at the moment until they see what the FED does.

There is uncertainty in the equity markets, in particular the U.S., and it is evident for all to see the divergence between the DAX and S&P.

With uncertainty in the U.S. one might expect a flight to safety with GOLD. But I see GOLD as a huge DEFLATION trade at the moment. The higher return in the USD is in direct comparison to China weakness, the ECB QE program and Japanese future economic uncertainty.

It is clear-cut in my eyes.

From an equity perspective, the SMART MONEY has reduced positions in U.S. equities.

From an FX perspective, Forex Traders are either going to get a major sell-off or a bounce in the EUR/USD. It is all based on the FED’s interpretation of U.S. economic data. If the FOMC says that interest rates can’t move because the data is still not good enough…. the USD will get crushed and I predict QE4.