U.S rates likely to remain on hold

Forex News and Events

FOMC rate decision due tomorrow

One month after the September FOMC meeting, which ended up with no monetary policy change, Fed members are gathering again. Traders will closely look at what will be declared as the power struggle between hawkish and dovish Fed members reaches a climax. While we do not expect any change in the current monetary policy, the minutes will be scrutinized to grab any hint about a further move.

We believe that no rate hike will happen this year with U.S. economic data printing mixed. It has been several months since the Fed announced a monetary policy normalisation, the end of the zero interest-rate policy. Slowdown in the global economy, and in particular in China, have, according to Fed officials, prevented a first rate hike, which would have been the first one in almost a decade.
Janet Yellen declared that she is awaiting confirmation of U.S. recovery before making any move.

The Fed’s dual mandate to promote maximum sustainable employment and target inflation of 2% is for the time actually failing in its mission. Indeed the dollar-complex has constantly strengthened since the beginning of the year. The inflation pressures are not likely to stop. China is the country with the largest U.S deficit. As China debased its currency three times in August, the trade deficit with China is likely to widen even more. As a result, U.S inflation will stay low.

The likelihood for a rate hike this year is almost null. Janet Yellen promised a 2015 rate hike. Her credibility is now crashing. Her hesitancy to act, to increase rates by a quarter point is sending completely the wrong signal. It is leading us to now properly wonder whether the U.S. economy is actually in a worse state than we have been led to believe. In the foreign exchange markets, the EURUSD is likely to move on some Fed members’ declarations. We think that markets are expecting a proper timeframe for a rate hike. If this does not happen then the true state of the U.S economy will really be brought into question.

EURUSD - Bullish Consolidation

The Risk Today

Yann Quelenn

EUR/USD is bouncing further after touching 1.1000. Hourly resistance is given at 1.1387 (20/10/2015 low). Stronger resistance can be found at 1.1561 (26/08/2015 low). Expected to show continued retracement of the pair. Since March 2015, the pair is improving. Key supports can be found at 1.0458 (16/03/2015 low) and 1.0000 (psychological support). The technical structure favours an eventual break higher. Strong resistance is given at 1.1871(12/01/2015).

GBP/USD is rising slowly. Support lies at 1.5202 (13/10/2015 low) and hourly resistance can be found at 1.5529 (18/09/2015 high). A long as prices remain in this range, there is no clear mid-term momentum. Expected increase towards resistance at 1.5529. In the longer term, the technical structure looks like a recovery as long as support given at 1.5089 stands. A full retracement of the 2013-2014 rise is expected.

USD/JPY keeps on declining towards 120.00. Strong resistance is given at 121.75 (28/08/2015 high). Hourly support can be found at 118.07 (15/10/2015 low). Expected consolidation before targeting again resistance at 121.75. A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF has failed to break resistance at 0.9844 (25/09/2015 high). Hourly support is given at 0.9476 (15/10/2015 low). Further bouncing is expected. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).

Resistance and Support: