The Fed decided to cut rates by 25 basis points yesterday, lowering them to the 2.00% -2.25% range. Despite the cut the USD strengthened as Fed’s Chairman Jerome Powell, suggested that the easing cycle would not be prolonged. However, the Chairman also stated in his press conference that he didn’t say that I’s a just once rate cut, implying that there may be further cuts down the road. It should be noted that the market seems to postpone its prior expectations for a September rate cut towards October as it prices in the possibility of the bank remaining on hold on the September meeting by 58.7 % currently. On another note, US President Trump expressed his disappointment by starting a new twitter attack on Powell and stating that “Powell let us down”. We expect the USD to remain data oriented and the market to be watching out for today’s releases, but mostly zooming in tomorrow’s release of the US employment report for July. EUR/USD tumbled yesterday breaking all our support levels (turning them into resistance) and landing just below the 1.1050 (R1) support line (now turned o resistance). Albeit there may be some correction, we expect the drop of the pair to continue (albeit with less intensity) as the financial releases today seem to favor the USD and as the market will start positioning itself ahead of the US employment release for July tomorrow. It should be noted though, that he RSI indicator in the 4-hour chart has reached below the reading of 30, implying a rather overcrowded short position. Should the pair continue to be under the selling interest of the market, we could see the pair, aiming if not breaking the 1.1000 (S1) support line. Should the pair’s long positions be favored by the market, we could see it breaking the 1.1050 (R1) resistance line and aim for the 1.1100 (R2) resistance level.
BoE’s interest rate decision
BoE is to release its own interest rate decision today at 11:00 (GMT) and the bank is widely expected to remain on hold at +0.75%. GBP OIS imply a probability of 97.8% for the bank to remain on hold and a poll conducted by Reuters showed that economists are almost certain that there will be a 0-9-0 vote for the bank to remain on hold. We could see the market’s attention turning to the accompanying statement, which may include some comments about the global trade uncertainty as well as possible consequences of a hard Brexit on the UK economy. The main question remains as to how BoE governor Mark Carney will tackle the prospect of a hard Brexit in his following press conference (11:30, GMT). We maintain the view that the event may have bearish effects on the pound, yet it is difficult to imagine how much further it can drop after it reached a new two year low against the USD yesterday. Albeit cable starting to rise yesterday, after the Fed’s interest rate decision it dropped breaking the 1.2135 (R1) support line (now turned to resistance). We could see the pair continuing its drop should the USD side of the pair strengthen even further today and tomorrow. Should the bears continue to dictate the pair’s direction, we could see it breaking the 1.20775 (S1) support line and aim for the 1.2000 (S2) support barrier. Should the bulls take over, we could see the pair, breaking the 1.2135 (R1) resistance line and aim for the 1.2210 (R2) resistance hurdle.
Other economic highlights, today and early tomorrow
Today during the European session, we get Germany’s final reading of the manufacturing PMI for July, UK’s manufacturing PMI for July and later on from the Czech Republic CNB’s interest rate decision. In the American session, we get Canada’s manufacturing PMI and the US ISM manufacturing PMI. In tomorrow’s Asian session we get the Australia’s retail sales growth rate for June and from the Japan the meeting minutes of June are to be released.
EUR/USD H4
Support: 1.1000 (S1), 1.0945 (S2), 1.0890 (S3)
Resistance: 1.1050 (R1), 1.1100 (R2), 1.1140 (R3)
GBP/USD H4
Support: 1.2075 (S1), 1.2000 (S2), 1.1925 (S3)
Resistance: 1.2135 (R1), 1.2210 (R2), 1.2290 (R3)
