EUR/USD Profit Locked at 1.1060; Fed Keeps Rates on Hold; BoJ in Focus

The FOMC has done as expected and left policy on hold, with the U.S. dollar losing ground against its G10 counterparts as markets digest the latest monetary policy decision from the U.S. Federal Reserve and look ahead to the latest decision from the Bank of Japan.

As expected the Fed kept rates unchanged but opened the door to a possible rate increase later this year. The interest rate remains in the 0.25 percent to 0.5 percent range. The Federal Reserve said the economy had expanded at a moderate rate and job gains were strong in June. It noted, however, that inflation expectations were little changed in recent months. The Fed's headline inflation rate currently stands at 1.6% and has been below target for more than four years.

The EUR/USD pair is looking more bullish following the aggressive rally during yesterday’s session after the rebound from the significant support level at 1.0970. The pair surpassed our suggested level and reached the recommended target at 1.1060. The common currency recorded a fresh six-day high and is approaching the 50-SMA on the weekly chart. However, in order to continue the current trend, investors must break through the resistance level at 1.1085 and go through the 200-SMA on the 4-hour chart. Then the price will challenge the next important technical barrier at 1.1170. On the same chart, the MACD oscillator has just entered the positive territory and the RSI indicator is approaching the oversold area.

Pound gained after FOMC but handed back half of its gains during Asian session

The pound was among the most benefited following FED's announcement, as the GBP/USD pair recovered above the critical level at 1.3200, which coincides with the short-term descending trend line, reaching a fresh weekly high of 1.3248. However, during the Asian session it gave back half of its gains made during the NY session. Over the last two weeks, the GBP/USD pair is consolidating within the 1.3070 support level and the 1.3290 resistance level. Currently, on the 4-hour chart, the pair is retesting the 50-SMA and a rebound on that obstacle is possible. Alternatively, if the price falls below the aforementioned difficulty the price will meet again the 1.3070 strong barrier. The RSI indicator is sloping downwards but is still following a positive path whilst the MACD indicator has just entered the positive area but with very weak momentum.

It should be noted, that the pound remained muted during the London session after the release of a better-than-expected Q2 GDP, showing that the economy grew by 0.6% in the three months to June, against previous 0.4%, as economic growth accelerated in the run-up to the vote to leave the European Union. On a yearly basis, the economy grew by a healthy 2.2%, against previous 2.0%.

Focus shift back to BoJ

The Bank of Japan (BoJ) policy meeting ends on Friday and the jury is open as to whether there will be any easing or not. The JPY turned back into the flavour of the day after the economic expansion package appears to be higher than the original expectations – ¥28 trillion rather than ¥10 trillion. However, most market participants expect the BoJ to announce more easing measures at its policy review on Friday, including deepening negative interest rates and increasing its purchases of riskier assets such as stocks as well as government bonds.

The USD/JPY pair plunged more than 1.1% during the last week after the bounced off from the descending trend line and the significant resistance zone at 107.50 – 108.00. Currently, the pair is near the 50-SMA on the daily chart and above the 100-SMA on the 4-hour chart. During the last hours, the 100-SMA had a bullish crossover with the 200-SMA but technical indicators seem to be in disagreement with the bullish scenario. Also, the pair is moving below the 105.00 psychological level and the next target level to watch is the 103.40 support level. The MACD oscillator is following a negative area the same as the RSI indicator which is falling below the 50 level.

AUD/USD Technical Outlook

The AUD/USD pair came under pressure during yesterday’s session and delivered a negative day, however, during the Asian session it managed to surpass the critical level at 0.7500 and is now challenging the 100-SMA on the 4-hour chart. Data released by the Australian Bureau of Statistics on Wednesday showed headline inflation at 1% vs. 1.1% for Q2 while the weighted median CPI was up 0.4% on-quarter. The release sent the pair briefly higher above 0.7550 but the pair was unable to hold on to gains and plunged below the 0.7500. The pair will likely enter now in wait-and-see mode ahead of some important economic events, but the short-term picture favors the upside, as in the 4-hour chart, the price action was able to settle above its moving averages (50-SMA & 200-SMA). Furthermore, the MACD is moving upwards and is ready to enter its bullish territory while the RSI is sloping upwards indicating a further upside momentum.

What to watch today

On Thursday morning, the German unemployment rate is coming out. In Euro area, various sentiment indicators for consumers, businesses, industrial, services and economy will be released. Later on, the German flash inflation rate for July will be announced.

The U.S. weekly jobless claims and the goods trade balance for June will be released. The New Zealand the building permits for June and the Gfk consumer confidence for July will be released.

Going to Japan, both the unemployment rate and the inflation rate are expected to remain unchanged at 3.2% and -0.4% respectively in June. The preliminary industrial production and retail sales are also expected to come out. A while later the Bank of Japan will announce its interest rate decision followed by the monetary policy statement that will be closely watched. In addition, the Bank of Japan will publish its semiannual economic outlook report.