FUNDAMENTAL
OVERVIEW
USD:
The US dollar has been mostly rangebound in the
past couple of days as hedging activity into the FOMC decision and renewed
escalation on the US-Iran front kept the price action in check.
Iran launched a “surprise attack” against US forces in
the region tonight. All the missiles and drones were intercepted, but the
escalation increased the risk of a prolonged conflict and therefore higher
energy prices.
Today, all eyes will be on the FOMC decision. The Fed
is expected to keep interest rates unchanged at 3.50%–3.75%. The consensus
expects up to two dissenters to vote in favour of a rate hike at this meeting,
likely Fed’s Logan and/or Fed’s Hammack. We won’t get the Summary of Economic
Projections (SEP) at this meeting.
Forward guidance is likely to remain limited, with Fed
Chair Warsh expected to refrain from providing any major policy signals while
stressing data dependence and the Fed’s commitment to price stability.
The hawkish surprises include more than two dissenters
voting for a rate hike or an outright rate hike. The “dovish” surprise, on the
other hand, would be a perfect consensus with no dissenters.
If the Fed delivers a hawkish surprise, we can expect the
US dollar to rally into new monthly highs on the hawkish repricing. Conversely,
a “dovish” surprise would likely see hedges getting unwound and weighing on the
greenback in the short-term.
For a more comprehensive Fed preview:
EUR:
On the EUR side, the ECB left
interest rates unchanged at the last meeting but communicated via the usual
post-meeting media “leaks” that it’s ready to hike at the September meeting if
the inflation outlook were to deteriorate.
The majority of policymakers
that spoke after the decision stressed data-dependence and refrained from
pre-committing to a policy move in September. They have also highlighted the
lack of clear evidence of second-round effects and stable inflation expectations.
On Friday, we get the Flash
Eurozone CPI report which will influence interest rate expectations. At the
moment, the market is pricing in a 65% chance of a rate hike at the September
meeting with a total of 37 bps of tightening expected by year-end.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDis trading below the key 1.14
zone where we have also the major downward trendline for confluence. This is a
strong technical resistance where we can expect the sellers to keep stepping in
with a defined risk above the trendline to target the 1.10 handle. The buyers,
on the other hand, will need a break above the trendline to open the door for a
rally into the 1.16 handle next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the consolidation around the resistance ahead of the FOMC decision.
Again, the sellers will continue to step in around these levels with a defined
risk above the trendline, while the buyers will wait for a break above the trendline
to pile in for a rally into new highs.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the near-term direction will be decided by the FOMC
decision. A hawkish surprise would trigger a selloff into new monthly lows, while
a dovish surprise would lead to an upside breakout and take us to the 1.1482
level. The red lines define the average daily range for today but in case we get
surprises from the FOMC decision, they won’t be respected.
UPCOMING CATALYSTS
Today, we have the FOMC
rate decision. Tomorrow, we get the Eurozone Flash Q2 GDP, the US PCE price
index, the US Advance Q2 GDP and the US Jobless Claims figures. On Friday, we
conclude the week with the Eurozone Flash CPI and the US Q2 Employment Cost
Index. Traders will also keep monitoring US-Iran developments.
This article was written by Giuseppe Dellamotta at investinglive.com.