The Dow Jones and the S&P 500 finished broadly flat after the Federal Reserve released the minutes from the June meeting – where interest rates were hiked for the second time this year. The report showed that some members of the Fed are worried about keeping the monetary policy too loose for too long.
They feel that if interest rates are kept low for an extended period, it could bring about a sharp upturn in economic growth, and that would warrant fast monetary tightening, which could be harmful to the economy. It sort of sounds like the Fed had to raise rates rather than wanting to raise rates.
The US central bank would like to press ahead with increasing interest rates in predictable and timely increments even though inflation is relatively low. The Fed feels that in the medium term inflation will pick up and move towards their 2% target. Some policy makers, did express concerns about raising interest rates will while inflation is weak.
The Fed believes that equity markets are strong because of a higher risk appetite by investors, it is a convenient way of not talking about how the low interest rate environment is driving asset prices.
Aside from interest rates, the US central hopes to reduce the size of its balance sheet, but policy markets are divided over when the start date should be. The US dollar tailed off as the market digested the minutes from the meeting, and it suggests that traders don’t think the Fed will be as hawkish as they are letting on.
The US will announce the ADP employment report and the jobless claims data at 1.15pm and 1.30pm respectively. The consensus is for 185,000 jobs to be added for the ADP announcement, and analysts are anticipating a reading of 143,000 for jobless claims.
WTI and Brent crude oil suffered a severe sell-off yesterday after Russia announced it does not want to cut output anymore. Adding to the decline was the news that exports from OPEC members rose in June. Oil enjoyed a very impressive winning streak, but the old fears about over-supply rose to the surface again.
Traders will be focused on the energy information agency (EIA) report, which is due out at 4pm. The consensus is for oil inventories to decline by 2 million barrels, and the previous report showed an increase of 118,000 million barrels.
EUR/USD – 1.1300 is acting as support, and if it holds the resistance at 1.1400 and 1.1495 will be the next prices to watch. A drop back below 1.1300 could see it return to 1.1200.
GBP/USD – is receiving support at 1.2875 – the 50-day moving average. If the support holds, bulls will be looking to 1.2977, 1.3000 and 1.3047. A break below 1.2875 could bring the support at 1.2800 into play.
EUR/GBP – has just dipped below the support at 0.8770, and the next support level is 0.8738. If it retakes 0.8770, the resistance at 0.8844 and 0.8880 will be the upside targets.
USD/JPY – is trading in the 113.00 region, and it is now acting as support, and bulls will be looking to the resistance at 114.36. A sizeable move below 113.00 will bring the 100-day moving average at 111.75 into play, and the next support level will be the 200-day moving average at 111.44.
FTSE 100 is expected to open unchanged at 7367.
DAX is expected to open 25 points higher at 12,478.
CAC 40 is expected to open 6 points higher at 5186.
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