USD Weakens Ahead Of Fed’s Interest Rate Decision

Fundamental analysis of Forex market

The USD seems to have weakened against a number of its counterparts, just ahead of the Fed’s interest rate decision (18:00, GMT) later today. The bank is widely expected to remain on hold at the range of 0.0% to 0.25% and currently Fed Funds Futures imply that the market has priced in such a scenario by 92.1% at today’s meeting, yet at the same time the market seems to expect rates to remain unchanged throughout the year. The second element of the decision is about the bank’s massive QE program and the bank is expected to reassure markets that it will keep policies in place to aid the U.S. economy, especially as its Main Street Lending Program seems to face doubts from Wall Street due to its complexity and size. Also, of great interest for traders and analysts alike are to be the new projections of the Fed for the US economy and we tend to focus on growth, with any possible recovery resembling or nearing a V shape, possibly providing support for the USD. At the same time, any forecasted inflation and unemployment trends are to be of the essence for the markets. The renewed dot plot with expectations of Fed members about the level of the bank’s interest rates, is expected to be also of great importance, albeit the market seems to have already priced in the possibility of rates remaining low for a considerable period yet the path towards future tightening will be eyed. Last but not least, we see Powell’s role as pivotal for any market reactions, especially during his press conference later on (18:30GMT). EUR/USD remained in the boundaries of a its prior sideways motion yet tested the 1.1345 (R1) resistance line. Hence, we maintain our bias for a sideways direction currently, yet the bull’s persistence may alter the pair’s direction. Also, the pair’s direction is expected to be influenced by the Fed’s interest rate decision on a fundamental level. Should the bears take charge of the pair’s direction, we could see it breaking the 1.1285 (S1) line and aim for the 1.1240 (S2) barrier. If the bulls dominate, we could see the pair breaking the 1.1345 (R1) line and aim for the 1.1410 (R2) level. It should be noted that the RSI indicator below our 4-hour chart seems to imply that the bulls are having the upper hand, yet there is still room for further advancements.

Pound regains momentum

The pound regained the momentum against the USD and strengthened against the EUR yesterday, albeit it should be noted that it nursed losses against safe havens JPY and CHF. Analysts tend to note that pressure for the pound may be tilted to the downside in the near term for the pound as domestic issues continue to weigh. As analyzed in prior reports Brexit negotiations last week resulted little if any progress adding pressure on the UK government and its end of the year deadline. Also, the introduction of a 14-day quarantine for international arrivals on Monday caused an outcry from airlines as well as the touristic sector. On the flip side Johnson’s government is looking to ‘improve’ U.K. rules on foreign investment in order to protect critical industries from foreign takeovers. The pound could remain rather passive against other currencies, yet BoE governor Bailey’s speech later today could generate some interest for the pound. GBP/USD regained momentum later in yesterday’s session and is currently testing the 1.2725 (R1) resistance line. The pair seems to have stabilized for now, yet the bulls seem to be just around the corner. Should the pair find fresh buying orders along its path, it could break the 1.2725 (R1) line and aim for the 1.2800 (R2) level. Should the pair come under the selling interest of the market, we could see it breaking the 1.2645 (S1) line and aim for the 1.2580 (S2) hurdle.

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Other economic highlights today and early tomorrow

Today we get Norway’s and the US inflation measures for May, as well as the EIA crude oil inventories figure. As for speakers please note that Riksbank governor Stefan Ingves, ECB’s Schnabel, BoE Governor Andrew Bailey, ECB’s de Guindos, and Fed’s Chair Jerome Powell are scheduled to speak today.

EUR/USD 4 Hour Chart

Support: 1.1285 (S1), 1.1240 (S2), 1.1180 (S3)
Resistance: 1.1345 (R1), 1.1410 (R2), 1.1480 (R3)

GBP/USD 4 Hour Chart

Support: 1.2645 (S1), 1.2580 (S2), 1.2515 (S3)
Resistance: 1.2725 (R1), 1.2800 (R2), 1.2880 (R3)