FOMC and Interest rate decision today and markets are cautious awaiting this important event
Traders turned their focus away from a denuclearization deal between North Korea and the US to the upcoming Fed meeting. Fed Chairman Jerome Powell reportedly wants a press conference after every meeting. US inflation rose to a six-year high which saw the 2-year bond yield climb to 2.54% (2.52%), inching toward its multi-year high of 2.59%. The Dollar rose against all of it’s Rivals.
Outlook: While markets shrugged off the Kim-Trump deal, it is a positive step and takes away the risks from last year.
The Fed is the first of three major central banks to meet on policy this week. The Fed is expected to raise the Funds rate for the second time this year to 2.00% from 1.75%. The ECB meets on policy tomorrow while the BOJ meeting is on Friday.
Trading View: The Dollar Index (USD/DXY) continues to grind higher. It finished up 0.24% to 93.831 (93.589 yesterday). This time the Greenback’s rise was broad-based.
Emerging Market tensions remained which pressurized their currencies. The USD/MXN traded to highs not seen since February 2017. The South African Rand extended losses against the Dollar to fresh lows last seen in December 2017. The Emerging Market moves should be monitored as it has, on some occasions, led the general Dollar move.
Data-wise, US data continues to outperform. US Core Inflation in May beat expectations, rising above April. Germany’s ZEW Economic Sentiment Index fell more than predicted. UK Employment data was broadly within expectations.
The Fed announcement following tomorrow’s rate decision will be watched with interest by all traders. Untilthe Dollar is bid. At the end of the day, yields and market positioning matter.then
The Dollar Index (USD/DXY) traded to an overnight high of 93.911 before settling to close at 93.831. Immediate resistance lies at 94.00, and a sustained break of that should see highs of just above 95 revisited. Immediate support can be found at 93.50 (overnight low 93.468). The corrective move lower was to 93.20 and that may have been enough. The Fed meeting outcome tomorrow should determine. Likely range until then 93.55-94.05.
EUR/USD – rose in Asia yesterday following the deal between North Korea and the US. Risk appetite improved which was positive for the Euro. However, the combination of a rise in US inflation data and a fall in Germany’s ZEW Economic sentiment index pushed the Euro lower. The weaker Emerging Market currencies also provided support for the Greenback. EUR/USD closed at 1.1745, down 0.24% from 1.1775 yesterday. The Euro traded to 1.18091 overnight high. EUR/USD has immediate resistance at 1.1775 and then at 1.1805. Immediate support can be found at 1.1730 and then 1.1700. Likely range today 1.1745-1.1805. Prefer to sell rallies.
USD/JPY – rose to close near it’s overnight highs at 110.35 (110.05 yesterday). The rise in US yields supported the Dollar. The yield on the US Ten-year bond climbed one basis point to 2.96% while Japans 10-year JGB yield was unchanged at 0.04%. If risk stays neutral, the yield influence will drive USD/JPY. Overnight high traded was 110.492. Immediate resistance remains at the 110.50 and then 110.80 level. Immediate support can be found at 110.10 and then 109.80. Likely range today 110.00-50. Just trade the range shag.
AUD/USD – The Aussie dropped 0.47% underperforming the Majors against the US Dollar. The combination of weaker resources and the ongoing Emerging Market tensions weighed on the Aussie. AUD/USD traded to 0.76238 overnight high. The 0.7620/30 level remains strong. AUD/USD low traded was 0.7565. Immediate support can be found at 0.7550. Westpac’s Consumer Sentiment is due out later today. The one thing that is in the Aussie’s favour is that the speculative community is still short Aussie. Likely range today 0.7550-0.7600. Look to trade the range.
GBP/USD – Sterling finished little-changed after PM May averted a Parliament rebellion over amendments over Brexit. The British Pound rose immediately following the news to 1.3425 overnight highs before edging lower on the overall stronger US Dollar to 1.3375, little-changed from 1.3380 yesterday. GBP/USD is still vulnerable to further USD strength and has immediate support at 1.3340 (overnight low 1.33418). Immediate resistance can be found at 1.3400 and then 1.3420. Likely range today 1.3340-1.3400. Prefer to sell rallies.
USD/ZAR – The rand lost 0.4% against the dollar on Tuesday morning, as emerging markets geared up for meetings by the US Federal Reserve Bank and the European Central Bank.
After losing 10 cents to the dollar in early trade, the rand firmed to trade evenly by 10:00. But it again weakened to trade at 13.22/$ at 11:12. At 14:02, it was trading at 13.17/$.
Events and Economic data releases today: Westpac Consumer Sentiment Index (May), UK Headline and Core CPI and UK House Price Index for May, Euro Zone Employment Change (May) and Industrial Production, US Headline and Core PPI for May, US Fed FOMC Statement, US Fed Funds Rate and FOMC Press Conference.