Fed Leaves Rate Unchanged; Focus Shifts to Inflation
On Tuesday, the Federal Reserve left its benchmark interest
rate unchanged and reiterated that interest rates would remain low for â€śan
extended periodâ€ť. In its statement, it also mentioned that inflation remains
subdued, and that the weak employment situation seems to have stabilized. While
this may sound rosy, the Fed did express concerns about housing and employer
reluctance to increase payrolls.
The tone of the statement suggests that while the Fed seems
to have a plan as to how to begin reducing stimulus and returning interest
rates to normal, it still is having trouble deciding when to initiate the first
rate hike. One obstacle it faces is the possibility it will kill the recovery
if it hikes too soon. The other more important obstacle is inflation. Although
by its standards, inflation is low, there is a possibility that all of the
liquidity that has been pumped into the financial system may trigger a spike in
The overall dovish tone of the statement gave the go ahead
for traders to continue to use the Dollar as a funding currency thereby driving
up demand for higher risk assets.
The U.S. Dollar finished lower as the rise in equity indices
and the prospect of lower interest rates for an extended period drove up demand
for higher risk assets.
The EUR USD extended its gains after the Fed statement.
Earlier in the session, the Euro was up on the news that Standard and Poorâ€™s
reaffirmed its rating on Greek debt. Some traders were concerned of a possible
downgrade but these worries were for naught. The decision by the S&P Corp.
now shifts the pressure on the Euro Region nations to create a bailout program.
Technically, the main trend is up on the daily chart with 1.4000 a near-term
target. This market is expected to move higher in an attempt to drive the
numerous shorts out of the market.
The inability to break to new lows helped to trigger a
short-covering rally in the GBP USD. Tuesdayâ€™s move erased all of Mondayâ€™s
losses and put this market in a position to regain a major 50% level at 1.5217.
Additional resistance comes in at 1.5297 to 1.5419. Despite the strong rally, the
fundamentals remain weak because of political uncertainty in the U.K., a weak
economy, debt concerns and a dovish monetary policy.
The USD JPY traded slightly lower despite strong gains in
equity markets. A .618 retracement level at 90.61 provided the most resistance.
The charts indicate that a breakout over a downtrending Gann angle at 90.83 is
likely to trigger an acceleration to the upside. The Bank of Japan is expected
to announce on Wednesday that interest rates will remain low and that
additional stimulus will be provided to help drive the recovery.
The strength in the Euro helped push the USD CHF lower. A
break through an uptrending Gann angle at 1.0590 helped to trigger an
acceleration to the downside. The chart formation suggests this market is
headed to a 50% level at 1.0513.
Demand for higher yielding assets helped the USD CAD extend
its losses. Downside momentum is building which has this market in a position
to drop to parity. The language in the Fedâ€™s statement suggests that demand for
higher risk assets should continue to increase pressure on the USD CAD. Todayâ€™s
rally in equities, crude oil and gold all contributed to the rise in the
Strong demand for higher yielding assets helped to support
the AUD USD in light trading. Technically, the trend is still up. Todayâ€™s rally
through Fridayâ€™s reversal top at .9194 reaffirmed the uptrend. The Fedâ€™s
decision to leave interest rates low gave traderâ€™s the green light to drive the
Strong upside momentum in the NZD USD sent this market into
a key 50% price level at .7124. The inability of the Fed to offer any clues as
to when it is likely to hike interest rates makes some traders believe that the
Reserve Bank of New Zealand
will raise interest rates before the Fed does. This is increasing demand for
the higher yielding Kiwi.
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Mon 10 Sep 2018 AA 08:30 GB- GDP, Trade, Output Tue 11 Sep 2018 AA 08:30 GB- Employment Decision A 09:00 DE- ZEW Survey Wed 12 Sep 2018 A 12:30 US- PPI A 14:30 US- EIA Crude A 18:00 US- Beige Book Thu 13 Sep 2018 A 1:30 AU- Employment AA 11:00 GB- Bank of England Decision AA 11:45 EZ- European Central Bank Decision A 12:30 US- Weekly Jobless AA 12:30 US- CPI Fri 14 Sep 2018 A 08:30 GB- GDP AA 12:30 US- Retail Sales A 13:15 US- Industrial Production AA 14:00 US- prelim University of Michigan
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