The FOMC maintained its benchmark interest rate at near 0%. It also continued tapering its bond purchase program, cutting it by another $10B starting in July. The total QE program is now $35B per month.
(source: Federal Reserve Bank)
Growth projection: Growth has rebounded in the recent months according to the FOMC.
Inflation projection: Inflation is picking up, but Yellen and the bank feels it will stabilize around target of 2.0% in 2016. For now, despite last week’s hot inflation reading for May (0.3% m/m), the Fed sees that inflation “has been running below the committee’s longer-run objective”
Employment projection: Although the unemployment rate has returned to lowest in 6 years, at 6.3%, the participation rate remains levels not seen since March 1978, at 62.8%. It is expected to fall below 6% in 2015.
FOMC announced nothing new, but maybe was slightly dovish relative to recent inflation data
It’s okay if you let out a few yawns during this key event risk. There wasn’t anything new and of course, Janet Yellen has the voice and pace appropriate for reading bedtime stories to kids.
There might be a slight disappointment for those expecting a more hawkish tone due to the growing inflation pressure. The reaction in the USD was initially mixed, but eventually, traders faded the USD.
Let’s take a look at USD Index, EUR/USD, GBP/USD, USD/JPY, and AUD/USD
After a rally in may, the US Dollar Index retreated from 81.00, trading sideways throughout June so far. The reaction to the FOMC statement and press conference has been whippy with price testing the week’s highs and lows. A break below 80.40 opens up 80.24 and introduces a bearish outlook for USD below 80.24. A break above 80.75 should clear this week’s high, as well as a falling trendline, and return USD to a bullish outlook seen in May. The 80.90, and 81.00 highs will be first in sight in this bullish scenario.
(USDX 4H chart, 6/18)
EUR/USD looks like it is completing a price bottom, and building up bullish momentum. After the initial reaction to the FOMC event risk, it is holding a bullish bias, and challenging the 1.36 handle. The next levels to watch for resistance in the upcoming sessions this week are at 1.3620 and 1.3670/75. A break below 1.3540 should reverse the outlook and put pressure toward the 1.3476 low on the year.
(EUR/USD 1H chart, 6/18)
GBP/USD initially fell to a new low on the week at 1.6919, but was not able to hold the bearish attack. Traders reversed the initial reaction, and cable looks poised to test the 1.7010 high, above which it should be able to challenge the 1.7040 high on the year. At this point, failure to push above 1.7010, and a break below 1.6920 should invite further bearish correction toward 1.6845.
(GBP/USD 1H chart, 6/18)
USD/JPY fell after an initial rally to 102.35. In the 1H chart, you can see price challenging a rising trendline that goes back to last week. A hold below 102 puts the low around 101.65 in sight, as well as put the focus back towards the low on the year at 100.76. In the larger time-frame, the USD/JPY is likely to stay within this 100.76-103 range until a material shift in policy outlook.
(USD/JPY 1H chart, 6/18)
AUD/USD was retreating from the 0.9437 high on the month. The 2014-high sits just above, at 0.9460. Traders were tentative ahead of the FOMC event risk as you can see a tight consolidation around 0.9340. The initial reaction was downwards, but traders quickly bought AUD/USD up to 0.94, breaking a falling trendline, and exposing the 0.9437 and 0.9460 levels.
There are other breakouts as well.
NZD/USD broke above its 0.87 resistance, and is now poised to challenge the May high at 0.8779.
USD/CAD fell after initially popping up to 1.0890. With the bearish reaction taking over, the market is focused at the 1.0814-1.0822 May-lows.
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