Is was a quiet day for trade through much of yesterday in anticipation of the FOMC decisions last night and as expected we saw no change in policy. The US Federal reserve kept interest rates unchanged and plans to begin thinning out its balance sheet in October. They also maintained their language with their forecasts still signaling one more rate hike in 2017, with a relatively upbeat assessment of the economy given recent natural disasters and as such the USD surged. The USD index rallied over 1.3% from yesterday’s lows and the greenback advanced across the board. EURUSD dropped from above 1.2000 to trade currently at 1.1885, while GBPUSD dropped to support highlighted yesterday at 1.3471. Stocks in Europe hovered near multi week highs, while in the US stocks also advanced led by financials as balance sheet reductions from the Fed and the prospect of another rate hike supported them.
Overnight trade was slightly more cautious, the Nikkei not advancing much despite the far weaker JPY, while Chinese stocks were just above flat. Slightly firmer start to European trade thus far with European indices all opening in the green, while the euro is facing some light early selling with EURUSD eying 1.1865 support while EURGBP will be looking towards support at .8775 and fresh lows below that.
Voting members of the FOMC were 11 to 5 in favour of one more rate hike in 2017 thus helping the greenback rally through yesterday evening. The Fed’s general assessment of the economy remained upbeat with a strong labour market and expectations of inflation to rise as a result of recent hurricanes, longer term the Fed see forces impacting lower inflation as transitory. They see near term risks to the US economy as broadly balanced and see a further three rate hikes in 2018 and two more in 2019. That all being said, the Fed will remain responsive to market conditions and should we see a material impact on growth then the Fed will likely remain reactive. House price data and Philly Fed survey are the highlights from the US session this afternoon but for now USD pairs have some key levels to break if the dollar’s advance is to continue. EURUSD needs to break below 1.1855 for further declines, while any rally towards 1.2000 will again favour euro sellers to emerge. GBPUSD needs to break below 1.3448 which marked yesterday’s spike low, and just below general support, rallies higher towards 1.3600 will favour GBP sellers.
The morning session has a little more bite to it with plenty to get our attention from the ECB. The ECB will publish its economic bulletin and we will also have several speakers with Praet chairing a panel in Frankfurt, where Draghi is also due to speak later in the day. ECB members have tried to keep the euro subdued in recent months but the impact has been minimal. There has been a notable uptick in “ECB sources” commenting recently and should speakers today voice these concerns again then the euro may well face some selling pressures. EURGBP sitting just above light support but a break below .8770 will quickly see .8738 and below that we turn even more bearish.