After FOMC yesterday, the interest rate is unchanged and inflation is close to the target and the dollar is bullish again

The FOMC left its key interest rate unchanged (1.75%) while acknowledging that inflation is close to their 2% target.

After FOMC yesterday, the interest rate is unchanged and inflation is close to the target and the dollar is bullish again

Dollar is bullish

The FOMC left its key interest rate unchanged (1.75%) while acknowledging that inflation is close to their 2% target. Fed officials signaled “further gradual increases” going forward. The Dollar did a U-turn, dipping after the FOMC Statement, then rallying to close higher. The Euro slipped further, down 0.34% at 1.1948 at the New York close. Emerging Market currencies slumped.

Outlook: The Dollar’s rally following the FOMC Statement shows how quickly sentiment has turned in favour of the Greenback. Make no mistake, the US central bank is on a tightening path while the other global central banks meander. Policy divergence is the major focus now, and the Dollar bulls are coming out of hibernation.

The US Ten-year bond yield edged higher to 2.97% (2.96% yesterday), still under 3.0%.

Trading View: While Euro and Sterling extended their losses (both down around 0.3%), the Aussie and Kiwi were flat. The USD/JPY ended little-changed at 109.91 (109.87 yesterday). Against the Majors, the Greenback’s rally was not broad-based. This is reflective of the speculative market’s positioning with short-covering continuing in the Euro and Sterling. Speculators were short Aussie at the latest CFTC/Reuters report.

The Federal Open Market Committee added the word “symmetric” to the nature of their 2% inflation target. I looked up the meaning of the word “symmetric” just to make sure I understood what that meant. And I got “balanced” or “well-proportioned”. The Feds outlook is balanced on the top end of their inflation target (2%) as it was at the bottom, which was 0.1% in 2015. Are they prepared to tolerate it above 2%? Perhaps, and Friday’s Fed speak following the Payrolls release will give us a clue. The quartet of Dudley, Williams,

Quarles and Bostic have scheduled speeches.

The yield on the US Ten Year bond finished at 2.97% from 2.96% after trading as high as 2.99%. The two-year yield slipped to 2.49% from 2.50%. Japan’s Ten-year JGB yield rose one basis point to 0.04%.

The US Dollar needs fresh yield support for its next leg higher. Markets are now focused on the US Payrolls tomorrow.

The Dollar Index (USD/DXY) initially traded down to 92.223 lows immediately following the Fed decision. USD/DXY closed at 92.773 after trading to a high of 92.834. Immediate resistance can be found at 92.80/93.00. Immediate support lies at 92.50 and then 92.30. Looking like further consolidation with today’s likely range 92.40-92.80. Prefer to sell rallies at these levels. We need to see lower first before higher.

 

Economic data and events today:

Australian April Trade Balance and Building Approvals. Watch the Building Approvals which slumped 6.2% in March. A gain of over just 1% is expected.
UK Services PMI and US Weekly Jobless Claims, as well as ISM Non-Manufacturing PMI, are out later today.

EUR/USD – had a good bounce to 1.2032 following the Fed decision before plummeting to fresh January 2018 lows of 1.1938 before settling at 1.1952 currently. The Euro’s move lower is reflective of a further shake-out of weak speculative Euro longs. When I say weak, I’m referring to the specs who purchased their Euros above 1.20/1.22 looking for a break higher through 1.2500. Mario Draghi and his colleagues were already warning the market that the air was too thin up there for Euro bulls. It’s difficult to see a straight move lower to the next 1.17-1.1800 target without a bounce first to the high 1.2070-1.2150 area. For today, immediate resistance can be found at 1.1980 and then at 1.2010. Immediate support lies at 1.1940 and then 1.1920. Likely range today 1.1935-1.1985. Just trade the range shag on this one. Further Euro weakness would have to see higher US yields.

EUR/USD

GBP/USD – slipped to 1.3570 after trading to 1.3665 overnight high. UK Construction PMI data released yesterday beat expectations but had no effect on the Pound this time. Markets were totally focused on the Fed with a June rate hike almost a certainty. A BOE May rate rise, on the other hand, looks unlikely. GBP/USD has immediate support at 1.3550 (overnight low 1.3555). Immediate resistance can be found at 1.3600 and then 1.3630. Like the Euro, it’s difficult to see this much lower unless we see US yields higher. Likely range today 1.3550-1.3650.

GBP/USD

AUD/USD – the Aussie finished flat at 0.7490 after trading to a high of 0.75375 overnight. AUD/USD has immediate and good support at 0.7475, which was the overnight low. Immediate resistance lies at 0.7505 and then 0.7535. Today sees the release of Aussie Trade Balance and Building Approvals for April. The yield on the Australian Ten-Year bond rose 4 basis points to 2.79%. it’s difficult to see the Aussie much lower from here unless we see a widening of the interest rate differentials. Likely range 0.7475-0.7535. Look to buy dips.

AUD/USD

USD/JPY – Pretty tight range on the Dollar-Yen expected with Japan celebrating Constitution Day today. The Dollar dipped to an overnight low of 109.60 before rallying to close at 109.92, little-changed from yesterday’s 109.87. The overnight high traded was 110.036. USD/JPY has immediate resistance at 110.05 and then 110.30. Immediate support can be found at 109.60. Look for consolidation with a likely range of 109.50-110.00. Trade the range.

USD/JPY

 

Now is your chance to make a profit!

Open an account here!

 

***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.

 

HIGH-RISK WARNING:

Trading Forex (Foreign Exchange) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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