The dollar index was little changed today as traders waited for the decision from the Fed. The expectation is that the Fed will hike rates by a quarter point. The market will pay close attention to the accompanying statement and the press conference that will follow. The decision comes at a time when some in the investment community are calling for a recession, as the yield curve inverts. The yields on the 2-year treasury bonds are currently at 2.5% while those of the 10-year are currently at 2.9%. The gap between the two is currently at 0.4%, which is the lowest it has been for more than 10 years. The curve inverted in 2007 and 1999, which led to a recession. Traders use the yield on the 2-year as an indication of where interest rates will average in the next two years. As such, Jerome Powell can expect to be asked why this time it’s different.
The euro rose slightly against the US dollar, the loonie, and the pound as traders waited for the ECB decision tomorrow. The ECB is expected to leave interest rates unchanged but based on the ECB Chief economist, they are expected to comment on quantitative easing. The ECB has talking about ending the 30 billion euros asset purchases for a few months now. In the last meeting, officials pointed to an exit in September, which would be followed by an interest rate hike. In tomorrow’s meeting, traders will want to know whether there is any change in policy. Recent data showed that inflation in the region jumped to 1.9%, which was higher than the expected 1.6%.
The pound fell against the US dollar today after data from the Office of National Statistics (ONS) showed that inflation stabilized in May. The data showed that consumer prices remained unchanged at 2.4%, with energy prices rising to the lowest level since 2011. The core CPI, which excludes the volatile food and energy products remained unchanged at 2.1% while the housing index dropped to 3.9%. The new data comes after the country released its industrial production – which fell – and the mixed employment data. It also comes after yesterday’s crucial Brexit vote.
The EUR/USD pair is currently trading at 1.1762. This is lower than the important support level of 1.1790 which the pair crossed this morning. The price is also below the 100-day moving average. In the short term, the pair could trade in a sideways direction as traders wait for the Fed decision. A hawkish tone could see the pair drop to the important support of 1.1650.
After rising to the 1.3470 level, the GBP/USD pair dropped and is currently trading at 1.3325. The pair has dropped below the important support level of 1.3390 and has recently tested the 61.8% Fibonacci Retracement level. If the pair trades below the 1.3305 level, there is a likelihood that the downward momentum will continue until it reaches the 1.3200 level. If it goes up, the pair could reach the important level of 1.3370.
The Nasdaq 100 index started a bullish rally in late April. Since then, the index has risen from $6,422 to yesterday’s high of $7240, which is higher than the 100-day moving average. The index could continue moving higher today after yesterday’s decision by the court to allow the AT&T and Time Warner merger. This is supported by the RSI and MACD indicators which give indications of a further upside.
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