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FOMC meeting minutes rules out the June rate hike scenario

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The Sterling pound enjoys both technical and fundamental elements that favor the ascending trend. The Monetary Policy Committee unanimously decided to maintain the interest rate and the settings of the Asset Purchase Facility program, while the Retail Sales index was reported above estimates at 1.2%. Technically speaking, the GBPUSD quotation is making higher highs and lows while recently overcoming the 1.5600 level and heading towards the resistance level at 1.5800. In the short term at least, market sentiment remains positive for the Pound.

The FOMC meeting minutes eliminated the assumption that the interest rate could be modified in June, but the prospects of the economy remained positive. It seems that the camp of Fed’s Evens and Kocherlakota who believe in a rate hike in 2016 begins to win over new followers, fact that influences the dollar in a negative way. The American economy still has to deal with the overvalued dollar and the low price of oil, so market participants are shifting their hopes towards September. Macroeconomic data continues to be weak as the Flash Manufacturing index falls to 53.8 points, Existing Home Sales decrease to 50.4 million, Philly Fed Manufacturing Index also falls to 6.7 points while the only good news is coming from CB Leading Index (up to 0.7%) and the Unemployment Claims report. Even if the claims slightly increased to 274k, the market perception was positive, giving that the number of last week touched the minimum of the last 15 years (264k). As long as the figures remain below 300k, the labor market is perceived as making progress.

In the Euro zone the situation is far more complicated. The PMI release revealed weak activity in the services and manufacturing fields, the Current Account fell to 18.6 billion, while the ECB Monetary Policy Meeting Accounts agreed that the QE works (also needs more time in order to have better effects), but governments have to implement local structural reforms in order to get a complete effect. Concerning Greece, it has received a new deadline for reaching a deal (by the end of the month) giving the fact that on the 5th of June it may default on debt payments towards IMF. EURUSD is trading in the 1.1061 – 1.1160 range as the price is struggling to resume the ascending trend.

The price of the WTI oil has raised lately as the American inventories decreased (-2.7 million) and the advance of the Japanese GDP increased prospects for improving the demand. The Brent quotation also reacted to this news, but was also influenced by the turmoil in Iraq which is threatening the oil transportation. As the WTI is situated in the 60.90 area and the price of Brent is located near 66.60, the quotations risk corrections during today while the ascending tendency remains in place on a short time interval.

The Bank of Japan decided to maintain its monetary policy parameters together with the optimistic outlook on inflation (which is set to reach the 2% target in fiscal 2016). Speculations about a possible increase in the QQE program are supplied by the fact that prices are still below the bank’s target. USDJPY is currently trading in the support area 120.70 – 120.87. A breakdown of the 120.70 level may push the price lower towards 120.57, while a rebound above 120.87 may increase chances for a rally up to 121.08.

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