All Lights On The Fed

Jul 28 21, 10:19 GMT

Today the market’s focus is expected to be on the release of the Fed’s interest rate decision and the bank is widely expected to remain on hold. Hence the main point of interest for traders turns towards what the bank’s intentions are about tapering its massive QE program. Practically the bank seems to be facing a dilemma between curtailing its asset purchases in order to curb inflationary pressures in a recovering US economy and continuing to keep the program unchanged to support the economy, given the uncertainty created by the Delta variant of the pandemic. Should the bank decide to adopt a dovish tone, we may see the USD as well as US treasury yields retreating, while on the contrary, should the bank decide to adopt a hawkish tone, signalling that it will start tapering its QE program rather sooner than later, we may see the USD and US yields gaining thus undermining also gold’s prices and the US stockmarkets. It should be noted that the bank may decide to postpone any announcements regarding a shift in the current supportive policy for the Jackson Hole Summit near the end of August, thus disappointing traders, or start paving the way towards some tightening of its monetary policy. In every case the event should be kept under close watch by traders, as it could create considerable volatility for the USD, while Powell’s press conference later on, could prolong any possible fluctuation of prices.

USD Index retreated yesterday testing the 92.30 (S1) support line, before recovering some of the losses. Given the index’s stabilisation we tend to maintain a sideways bias currently, yet the Fed’s interest rate decision could alter the index’s direction to either side. It should be noted that the RSI indicator is between the readings of 50 and 30, implying a slight advantage for the bears. Should the bears actually take control, we may see the Dollar index breaking the 92.30 (S1) support line and aim for the 91.75 (S2) level. Should the bulls take over, we may see the index breaking the 92.75 (R1) resistance line and aim for the 93.40 (R2) level.

CAD weakens as sentiment weighs

The Looney weakened against the greenback yesterday as market sentiment tended to weigh especially given that the Chinese crackdown on companies also weighed on Chinese stocks, worrying investors and reducing the risk on sentiment of the market. Oil prices remained rather stable yesterday despite a slight drop and despite the API weekly crude oil inventories figure showing a considerable drawdown which tended to imply that conditions are rather tight in the US oil market. We expect CAD traders to continue to be influenced by the general market sentiment as well as oil prices, yet also keep an eye out for Canada’s CPI rates for June which are due out today.

USD/CAD edged higher despite the USD index retreating, adding some distance between its price action and the 1.2560 (S1) support line. Despite the rise we tend to maintain a bias for a sideways motion near the 1.2560 for the time being albeit the Fed’s interest rate decision and the release of Canada’s CPI rates could alter the pair’s direction. It should be noted that the pair’s RSI indicator below our 4-hour chart is at the reading of 50 also implying a rather indecisive market. Should buyers be in charge of the pair’s direction, we may see the pair aiming if not breaking the 1.2650 (R1) resistance line, aiming for higher grounds. Should a selling interest be displayed by the market we may see the pair breaking the 1.2560 (S1) support line and aim for the 1.2470 (S2) support level.

Other economic highlights today and the following Asian session:

Today during the European session, we get UK’s nationwide house prices for July and Germany’s GfK consumer sentiment for August. In the American session we note the release of Canada’s CPI rates for June and later the weekly EIA crude oil inventories figure.

USD Index H4 Chart