The Federal Reserve will set their benchmark interest rate tonight at 19:00. The consensus is for interest rates to remain unchanged in the 1-1.25% bound. The focus will be on the Central Banks rhetoric towards reducing the size of its gargantuan balance sheet and thus reversing the Quantitative easing it went through after the financial crisis. Forecasts are for it to start in September and for an interest rate rise in December or vice-versa.
UK GDP is marked for release today at 09:30. Expectations are for the UK economy to have grown by 1.7% below the previous 2% read. The UK economy is already looking fragile with economic growth forecasts being reduced by both the Bank of England and the IMF. Despite this, inflationary pressure has dropped and should the Brexit negotiations go well, the waters ahead may be a little clearer.
Positive news out from the Eurozone has seen Greece successfully return to the bond market for the first time in 3 years. The total value of the bond sale was €3bn and represents a milestone for the countries return to economic health. The Greek prime minister, Alexis Tsipras, hailed the auction as a “significant step” towards exiting Athens’ third bailout in mid-2018.
Stock markets in Asia followed their US counterparts higher overnight. Wall street had been led higher on the back of encouraging earnings released and sent the S&P to a new record high. The S&P rose 0.3% on Thursday to reach a record closing high of 2,477. European equity markets are expected to open marginally higher. The Dollar index was flat at 94.094 whilst the Euro was flat at $1.1646 after reaching its strongest level since January 2015 against the Dollar. In commodities, Oil was up 0.8% to $50.59 and Gold dropped 0.2% to $1,247.19.
Trading was subdued this session as traders prefer to stay on the side-lines ahead of the FOMC policy outcome where no change in rates is expected but further guidance on the timing of balance sheet reduction will be closely eyed. EUR/USD is trading lower ahead of the European open, but look for a lift in the event of a dovish FOMC outcome, since ECB taper expectations aren’t going away as well. From a technical view, we look for resistance at yesterday’s high and the August 24th, 2015 high of $1.1712 followed by the January 15th, 2015 high at $1.1793. On the downside, Friday’s low at $1.1618 and last Tuesday’s high at $1.1583 are in focus.
GBP/USD is retreating for the second consecutive session so far today, flirting with session lows near $1.3000 as investors brace for the big risk events due later today. The UK will see first estimates of GDP which is expected at 0.3% q/q and 1.7% y/y, but most attention will be on the FOMC meeting later in the North American session. In terms of technicals, yesterday’s high at $1.3083 may offer some resistance before last Tuesday’s high at $1.3125. On the downside, Monday’s low at $1.2983 and Friday’s low at $1.2951 are in focus.
USD/JPY moved above the ¥112.00 level in Asia but failed to sustain the early up-move and retreated around 20-pips as the US Senate Republican’s plan to repeal and replace Obamacare failed to get votes needed for approval. Meanwhile, the Yen found some support from the BOJ Deputy Governor Nakaso’s optimistic comments on the inflation outlook, saying that they can expect to see a turnaround in inflation expectations despite recent weak developments in prices. From a technical view, today’s high at ¥112.08 followed by Thursday’s high at ¥112.41 may offer resistance. On the downside, Monday’s high at ¥111.30 and yesterday’s low at ¥110.80 are in focus.
GBP/EUR is flat this morning. The pair hit a daily high yesterday of €1.1200. Comments from Nowotny yesterday did soften the single currency slightly after he said there is no need to set a timetable to end the bond buying program. From a technical view, Monday’s low at €1.1128 may offer some support before Friday’s low at €1.1115 and the November 11th low at €1.1078. On the upside, Monday’s high at €1.1209 and last Tuesday’s low at €1.1235 are in focus.