So the FOMC meeting is now behind us and even though we expected to come out wiser after the press statement the truth is that this time the central bank kept their cards close to their chest. Most analysts expected the Fed to use this meeting as an opportunity to prepare the markets for a rate hike on one of the following months before the end of the year and their forward guidance was expected to drive the US Dollar higher.
What is important to note here is that even though the former didn’t happen the latter did, meaning that even though the Fed appeared less committal about the potential date of the rate hike the US currency ended the day with strong gains against the rest of the majors. The reason behind this move is that the central bank stated that they wanted to see “some further” improvements in job growth and wages’ levels before pulling the trigger.
Market participants were encouraged by that statement interpreting it as a bullish hint from the Fed that shows that the rate hike remains data-dependent and that the central bank was unfazed by the recent developments in China and Greece. As such a further continuation of the positive pace of growth in the domestic economy would mean that the Fed could go ahead even as soon as September and that allowed the Dollar to rally over the past 24 hours.
Taking a more detailed look in the price action in the major currency pairs, the Euro has broken below the 1.1000 support area where the 200-period moving average was also located. This morning the Single currency is trading around the 1.0950 level and the sentiment remains bearish since the previous uptrend that had driven the Euro to the 1.1100 highs has now been reversed.
There is a number of reports scheduled for release today from Europe and the US so we expect further action from the Euro, the target to the downside lies at the 1.0920 lows while the resistance of the 1.1000 barrier should keep the currency capped for now.
Cable was rather volatile yesterday as usual and the reason behind it was the combination of UK-related reports early in the day and the Fed meeting later. The UK currency was lifted during the early European session when Mortgage Approvals improved but the rally that drove the currency to fresh highs was not to last. When the Fed released their press statement the US Dollar took control of the flows and drove the Cable towards the 1.5600 level where we find it this morning.
The outlook appears mixed for the Cable at this time, the US Dollar got a nice lift after the Fed meeting but the Pound also appears strong and in demand so we would advise caution in taking any hasty decisions over the Cable’s outlook. There are no UK-related reports until the end of the week so the Dollar’s pace should dictate the price action during the following days.