Fed’s interest rate decision in the limelight

Today’s highlight of the day may be the FOMC’s interest rate decision which is due in today’s American session. Following yesterday’s CPI print for May coming in lower than expected on a mom and on a yoy level and with the Core CPI rates coming in as expected, it may be indicative of easing inflationary pressures in the US economy. As a result, traders may be anticipating that the CPI print, may have eased pressure on the Fed to continue its aggressive rate hiking path, with FFF now implying a 91.66% probability for the Fed to remain on hold. However, it is our opinion that should the Fed remain on hold, they may include hawkish language, implying future rate hikes may still be due and as such resulting to a hawkish pause. Furthermore, we highlight that we will be receiving the new dot plot chart, potentially indicating shifts from the dovish and hawkish camps. During yesterday’s European session, we note the release of the UK’s Employment data for April, indicating a tight labour market in the UK economy. Thus, potentially making the case for future rate hikes by the BoE, as inflationary pressures appear to persist in the economy. Furthermore, we highlight Germany’s ZEW indicators yesterday which tended to provide mixed signals. In today’s early Asian session, we highlight New Zealand’s trade balance declining on a yoy level for Q1, yet improving on a qoq basis, which tended to provide mixed signals for the Kiwi. Oil traders seem to have found some support following yesterday’s OPEC report. The monthly reported indicated that the forecast of demand for 2023 remained unchanged, despite markets worries of a looming recession. In addition to a report by Reuters that Iraq’s oil production has been underperforming, it may have facilitated oil’s rise during yesterday’s trading session.

AUD/USD continues moving in an upwards trajectory, despite breaking below our upwards trendline and is currently testing resistance at 0.6770 (R1). Therefore, we maintain a bullish outlook for the pair and supporting our case is the RSI indicator below our 4-Hour chart which is near the reading of 70, implying a bullish market sentiment. For our bullish outlook to continue, we would like to see a clear break above resistance at 0.6835 (R2) with the next potential target for the bulls potentially being the 0.6920 (R3) resistance ceiling. On the other hand, for a bearish outlook, we would like to see a clear break below support at the 0.6700 (S1) level, with the next potential target for the bears being the 0.6640 (S2) support base.

USD/JPY continues in a sideways fashion, having failed to break above or below support and resistance at 138.70 (S1) and 140.80 (R1) respectively. Therefore, we maintain a neutral outlook for the pair, as long as the price action remains between the aforementioned support and resistance levels and supporting our case is the Bollinger bands, which appear to have narrowed, implying low market volatility, in addition to the RSI indicator below our 4-Hour chart, registering a figure near 50, implying a neutral market sentiment. For a bullish outlook, we would like to see a clear break above resistance at 140.80 (R1) with the next potential targets for the bulls being the 142.75 (R2) resistance ceiling. On the other hand, for a bearish outlook, we would like to see a clear break below support at the 138.70 (S1) level with the next potential target for the bears being the 136.60 (S2) support base.

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In today’s European session, we note the release of the UK’s GDP and manufacturing output growth rates for April, Sweden’s inflation measures for May and the Eurozone’s industrial production for April. In the American session, besides the Fed’s interest rate decision, we note from the US the release of the PPI rates while oil traders may be more interested in the release of the EIA weekly crude oil inventories figure. During tomorrow’s Asian session, we note the release of New Zealand’s GDP Q1, Japan’s machinery orders for April and the trade data for May, Australia’s employment data for the same month, and from China the urban investment, industrial output and retail sales, all being for May.