Fed On Hold! Rate Hike By the End of 2016 is Still Likely

Federal Reserve decided to keep its policy interest rate unchanged to have more available data to assess the economy before any policy changes. The central bank kept its fed funds rate target band at 0.25% to 0.5% and signaled that 2016 rate increase is still likely. According to the FOMC statement the “Near-term risks to the economic outlook appear roughly balanced”.

“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Fed Chairwoman Janet Yellen said that Fed’ decision not to raise interest rates in September shouldn’t be interpreted as a lack of confidence in the economy. The domestic labor market strengthened and policymakers expect that to continue while they expect the low inflation to rise above the 2% target over time.

The statement was more optimistic than expected and the fact that three FOMC officials disagreed over the final decision to keep the interest rates on hold, raises optimism that we may see an interest rate hike in December’s meeting, after the U.S. presidential elections. There are no other developing risks in the scene for now, thus if the economy continues on the current course we may see a rate hike soon. Following the Fed’s statement after its two-day meeting, the dollar depreciated against the all of its major counterparts. USD/JPY plunged 1.4% while AUD/USD rose almost 0.9%. Gold elevated 1.3% while all the Wall Street ended the day in the green. Nasdaq closed at a record high after it increased 1.03% to 5,295, S&P500 lifted 1.09% and Dow Jones picked up 0.90% as the stocks are benefited from the low interest rates.

In terms of projections, Fed lowered its interest rate forecasts by the end of 2016 to 0.6% instead of 0.9% they forecasted in June while they expect funds rates to rise to 1.1% in 2017 from 1.6% estimated earlier.

EUR/USD – Technical Outlook

The world’s most traded currency – the EUR/USD – was virtually unchanged the last 4 days despite that during yesterday’s session Fed interest rate decision managed to fall short of expectations and surprised the investors. Euro took its cue from the U.S. dollar and is trading higher against the greenback.  Over the last sessions, the pair has been choppy and fairly directionless as it is still moving between the 1.1120 support level and the 1.1200 psychological level.

Since yesterday the common currency is surging towards the strong latter level which overlaps with the 200-daily SMA, 50-daily SMA and also slightly above the three SMAs (50-SMA, 100-SMA and 200-SMA) on the 4-hour chart. In addition, the price failed to slip below the aforementioned support level and currently is challenging the 1.1200 significant resistance barrier. A successful penetration of that level will expose the price until the descending short-term trend line at 1.1250 or moreover until the resistance zone at 1.1265 – 1.1285. On the other hand, a failed attempt will open the way for a retest of the 1.1120 obstacle. On the 4-hour chart, technical indicators are endorsing the bullish tone since both of them are rising. The MACD oscillator lies above its trigger line and is moving near the zero area while the RSI indicators entered the positive territory.

GBP/USD – Technical Outlook

The GBP/USD pair rose 0.3% over yesterday’s evening period and now is looking much more bullish in the short-term following the strong rebound on the significant support level at 1.2945. The volatility expectations following Fed interest rate decision were more aggressive for the pair however, the price had an almost steady day.

The technical structure remains bullish as the currency is trading towards the 1.3090 resistance level. Also, the next possible target is the 1.3140 strong barrier which coincides with the 50-daily SMA, as well as the 50-SMA and 200-SMA on the 4-hour chart. The price will probably challenge the mentioned level as it is very strong level for the bulls and a good barrier for a pullback. Technical indicators are biased higher as the MACD indicator is approaching the zero line and is moving above its trigger line. The RSI oscillator lies slightly above the 50 level with some strong momentum.

USD/JPY – Technical Outlook

The USD/JPY pair recorded the third red candle in a row and plummeted more than 1.3% during yesterday’s session. The pair had a rebound on the descending daily trend line which coincides with the 100-monthly SMA and slipped below the 50-daily SMA. Additionally, near the latter obstacle is also the first resistance of the pivot points which seems to be a strong obstacle for the bulls.

The last few hours the pair is moving slightly above the 100.00 key psychological level. A penetration of the latter level will open the way for the first support of pivot points at 99.50 and a further decline of the price will challenge the 99.00 barrier. An alternative thought is a pullback and a retest of the 101.00 obstacle. A break above the last mentioned level will open the way for the 102.00 resistance level. Furthermore, the Relative Strength Index (RSI) indicator is following a negative path but is still moving above the 30 level whilst the MACD oscillator lies below its zero line and during the aggressive sell-off crossed below its trigger line, confirming the bearish scenario.

Gold – Technical Outlook

The precious metal continues to be confined within a symmetrical pattern. The XAU/USD pair yesterday had a rebound on the $1,306 price level and recorded the fourth consecutive positive candle. Also, the yellow metal surged more than 1.3% and now is trading between the aforementioned obstacle and the $1,341 price level.

The consolidation in this pair over the last couple of weeks, which previously looked like a triangle – a continuation pattern – has now become a descending triangle. This is typically a bearish pattern, regardless of whether it appears in an uptrend or a downtrend. What this does suggest is that following the very aggressive rally over the last couple of weeks, we may finally be about to see a proper retracement. This could also potentially be a longer term trend reversal, although at this stage I see no evidence of this and will, therefore, treat it as a retracement. For the next sessions, the next level to watch is the $1,341 resistance level which overlaps with the descending trend line and even more will probably retest the $1,352 barrier. Technical indicators on the 4-hour chart, are moving in an overbought area with strong momentum confirming the upward potential move on price.

What to watch today

The focus on Thursday will be on the ECB President Mario Draghi’s speech at 13:00 GMT time. Earlier in the day, Eurozone’s economic bulletin report will be released while in the U.S. the initial jobless are coming out as usual. Moreover, the CB leading indicator is forecasted to slow its pace of growth at 0.1% mom in August from 0.4% before and the existing home sales also for August are forecasted to rose to 5.44M from 5.39M mom the previous month. Half an hour after ECB Draghi’s speech, in U.K., MPC member Cunliffe will give a speech. In the Eurozone area, the first estimation of consumer confidence for September is predicted to have a small rise to -8.4 from -8.5 before. In the midnight, the RBA Governor Philip Lowe will give a speech.