Fed’s Dovish Stance Weakens USD

Jun 11 20, 09:58 GMT

The USD tended to weaken against a number of its counterparts yesterday, after a very dovish stance by the Fed yesterday. The bank as was widely expected remained on hold at 0.00% to 0.25% and that being said, the renewed dot plot shows that Fed policy makers expect rates to remain at that level throughout 2022, refuting any hopes for a possible tightening any time soon. The bank’s projections were quite gloomy as the bank expects a contraction of the US economy at -6.5% for the current year, with the GDP growth rate rebounding back into the positives in 2021 with +5% and 2022 +3.5%. In a similar pattern inflation is expected to hit a low point of 1% for 2020 and accelerate reaching 1.5% in 2021 and 1.7% in 2022, while unemployment is expected to be at 9.3% for 2020 and start dropping to 6.5% in 2021 and 5.5% in 2022. The figures tend to disclose the full blow of the COVID-19 crisis on the US economy, however we would like to note that the GDP contraction is still shallower than respective ECB expectations for the Eurozone. In its accompanying statement the bank reiterated that it is “committed to using its full range of tools to support the U.S. economy in this challenging time”, which was comforting, and noted that “Financial conditions have improved, in part reflecting policy measures” which also added reassurance. It’s characteristic that in his press conference the Fed’s Chairman Powell stated that “We’re not even thinking about thinking about raising rates“. Overall, the event was characterized by hopes of the Fed for a possible rebound of the economy, the acknowledgement of the existing dangers and a cautious stance keeping rates low for an extended period.USD/JPY continued its descent aiming for the 106.60 (S1) support line. We maintain a bearish bias for the pair as long as it remains below the downward trendline incepted since the 9th of June. Please note that the pair’s price action tends to continuously test the prementioned trendline. Should the bears maintain control over the pair, we could see it breaking the 106.60 (S1) line and aim for the 105.30 (S2) barrier. If the bulls take over, the pair could reverse course, break the prementioned trendline as well as the 107.75 (R1) line.

AUD eases against the USD

The Aussie weakened against the USD after the Fed’s interest rate decision, abandoning prior day’s highs, as expectations were fueled by investor expectations that Australia’s interest rates would stay low as well. Despite the drop, the Aussie remains near the July and December 2019 highs when RBA’s rate was higher than today’s +0.25%. We tend to maintain a positive outlook for AUD as commodity prices, seem to remain at good levels with expectations to increase further. Also, it should be noted that Australia, seems to have managed to maintain the number of COVID 19 cases at comparatively low levels adding to hopes for a quicker rebound of the Australian economy. As mentioned, AUD/USD retreated after unsuccessfully attempting to break above the 0.7025 (R1) resistance line for a second time since Monday. Please note that the R1 area tends to mark the highs of the pair for the last 11 months, hence resistance may be hefty. We tend to maintain our bias for a sideways motion yet suspect that the bears may eyeing the pair as a double top formation was created. If the pair breaks the 0.6940 (S1) support line which marks the lower boundary of its past sideways motion, a selling momentum could prevail driving the pair towards the 0.6840 (S2) support level. On the flip side should the pair find fresh buying orders along its path, it could break the 0.7025 (R1) line and aim for the 0.7100 (R2) level.

Other economic highlights today and early tomorrow

Today we get Sweden’s CPI rates for May, the US initial jobless claims figure for the past week as well as the US PPI rates for May. During Friday’s Asian session, please note New Zealand’s manufacturing PMI. Also bear in mind that EUR may experience some volatility as the there is going to be a Euro group meeting and a possible agreement on the EU’s €750 billion fiscal stimulus could lift the common currency.

USD/JPY 4 Hour Chart