Fed hikes rate attention turns to US GDP rate, ECB’s and BoJ’s rate decisions

The USD tended to edge lower against its counterparts, as the Fed delivered the expected 25 basis points rate hike yet provided little new for market participants. In its accompanying statement, in our opinion, the bank seems to have removed its predisposition for more rate hikes and is more data-dependent. It’s as if the bank accepts that it has reached the end of its rate hiking cycle yet at the same time keeps the door open for another rate hike in the September meeting if necessary. The release was viewed as leaning towards the dovish side and weakened the USD yet at the same time strengthened gold and US stock markets.

Across the pond EUR traders prepare today for ECB’s interest rate decision, the bank is expected to hike rates by 25 basis points and EUR OIS imply a probability of 98% for such a scenario to materialize, while also suggest that another rate hike may be possible in the October meeting. Should the bank actually deliver the rate hike, attention is expected to shift towards the forward guidance that may be included in the accompanying statement and ECB President Christine Lagarde’s press conference, half an hour later. Should the bank remain hawkish favoring the scenario of another rate hike, we may see EUR getting some support, while should the bank hesitate and ease its prior hawkish stance, we may see the common currency slipping.

EUR/USD edged higher in the past twenty-four hours, aiming for the 1.1145 (R1) resistance line. Given that the pair in its upward movement has broken the downward trendline guiding it since the 18^th of July, we switch our bearish outlook in favour of a sideways motion bias. Please note that the RSI indicator is rising and surpassed the reading of 50, implying that the bearish sentiment is practically out and ECB’s interest rate decision is to be the next key event. Should the bulls take over we may see EUR/USD breaking the 1.1145 (R1) resistance line and aim for the 1.1270 (R2) resistance level. Should the bears be in charge we may see the pair breaking the 1.1020 (S1) support line and aim for the 1.0920 (S2) support level.        

JPY traders are to keep a close eye on the release of BoJ’s interest rate decision, in tomorrow’s Asian session and the bank is expected to remain on hold at -0.10%. The main element at which JPY traders are focusing is whether the bank is to widen its tolerance level regarding the yield of Japanese Government Bonds. Should BoJ widen its tolerance level and allow for yields to rise further say for example to ±100 points, we may see the market viewing the tweak in BoJ’s ultra-loose monetary policy as hawkish and thus providing some support for JPY, regardless of the bank’s narrative. For the time being, we doubt whether the bank is to provide such a signal and should the bank keep its ultra-loose monetary policy settings in place, we may see JPY losing ground, as the monetary policy outlook differentials are to continue weighing.   

USD/JPY maintained its downward motion aiming for the 139.15 (S1) support line. We tend to maintain our bearish outlook as long as the downward trendline guiding its remains intact. Should the selling interest be maintained we may see USD/JPY breaking the 139.15 (S1) support line and aim for the 137.40 (S2) support base. Should the bulls take over, we expect the pair to reverse direction, break the prementioned downward trendline, signalling an interruption in the downward movement of the pair, break the 140.80 (R1) resistance  line and aim for the 142.30 (R2) resistance barrier.  

Other highlights for the day:

Today, besides ECB’s interest rate decision, we also note the release of Canada’s business barometer for July, the US durable goods orders for June and the US weekly initial jobless claims figure, while the highlight of financial releases is expected to be the US GDP advance rate for Q2. During tomorrow’s Asian session and besides BoJ’s interest rate decision, we note the release from Japan of Tokyo’s CPI rates as well as the release of Australia’s PPI rates for Q2. 

EUR/USD H4 Chart

Support: 1.1020 (S1), 1.0885 (S2), 1.0780 (S3)

Resistance: 1.1175 (R1), 1.1270 (R2), 1.1370 (R3)

USD/JPY H4 Chart

Support: 139.15 (S1), 137.40 (S2), 135.70 (S3)

Resistance: 140.80 (R1), 142.30 (R2), 143.90 (R3)

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