FOMC On Hold; BoJ Up Next

 | Jul 28, 2016 05:11AM ET

London Forex Report: The Fed left rates unchanged at 0.50% as expected but left the door ajar for rate hike this year, citing diminished near term risks to the US economy. The Fed has also turned more upbeat about growth assessment although officials remained cautious on the consequences of rate hike as inflation remains below the Fed’s 2% target.

While the FED acknowledge that recent dataflow from the US has turned more encouraging, they prefer to err on the safe side pending more concrete signs of sustainable recovery in growth and prices before changing our view on rate pause this year. Yesterday’s US data was not impressive as durable goods orders extended its declines and pending home sales rose less than forecasted in June.

Durable goods orders tumbled 4.0% MOM in June amid a sharp decline in capital goods orders and showed still lackluster investment that would remain a drag on 2Q growth. USD Index tumbled post-FOMC announcement and erased early gains to close 0.11% lower at 97.02 as markets began to doubt the Fed’s commitment to normalize policy as quickly as initially expected

FX Majors: EUR Federal Reserve’s statement was not strongly pointing toward a September rate hike. The major component in dollar index, euro, surged almost 0.8% after the FOMC meeting GBP UK’s economy grew more than expected before Brexit but may mark a directional turn from stable growth as the vote last month delivered an immediate blow to business and consumer sentiment.

The country expanded 0.6% QOQ in 2Q which was quicker than the 0.40% QOQ pace in 1Q as industrial production registered its biggest increase since 1999. JPY Japan’s Prime Minister Shinzo Abe said that the government will roll out stimulus package worth 28 trillion yen ($ 265.3 billion) which include 13 trillion yen in “fiscal stimulus” comprises of spending by national and local governments as well as loan programs.

EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: Breach of 1.1060 reestablishes range trade and refocuses attention on 1.1185 range resistance as the major near term upside hurdle a close above this level opens 1.14 next.
Retail Sentiment: Bearish
Trading Take-away: Sidelines