Fed Lays the Groundwork for Lower Rates, Norges Bank and BoE on Today’s Agenda

Fed Keeps Rates Steady, but Opens the Door to Decreases

The dollar traded lower against all the other G10 currencies on Wednesday and during the Asian morning Thursday. It fell the most against CAD, NOK, CHF and GBP in that order, while the currency against which the dollar underperformed the least was AUD.

USD/JPY — Technical Outlook

USD/JPY traded lower following the FOMC’s decision to open the door to lower US rates, while during the Asian morning today, it dipped below the key support barrier of 107.85, to trade in territories last seen in the beginning of January. The dip confirmed a forthcoming lower low on both the 4-hour and daily charts, which, combined with the fact that the rate is trading below the downtrend line drawn from the peak of April 24 th, keeps the outlook negative.

Central Bank Torch Passed to the Norges Bank and the BoE

As for today, the central bank torch will be passed to the Norges Bank and the Bank of England. Kicking off with the Norges Bank, at its latest meeting, it noted that its next hike would most likely come in June. Since then, data showed that GDP for mainland Norway slowed to +0.3% qoq in Q1 from the stellar 1.1% qoq in the last three months of 2018, which is below the Bank’s latest forecast of +0.6%. Inflation slowed as well, with both the headline and core rates now standing slightly below officials’ projections for May. The data may have put a June hike into some doubt, but with both the CPI rates still above the Bank’s aim of 2%, we believe that there is still a decent chance for officials to push the hike button today. That said, the rate increase may be accompanied by lower economic forecasts, as well as a downside revision in the Bank’s rate path projections, which may prevent NOK from strengthening notably in the aftermath of a potential hike.

GBP/USD — Technical Outlook

GBP/USD has been in a recovery mode since Tuesday, when it hit support near the 1.2510 zone. Today, the rate emerged above the 1.2670 hurdle and appears able to continue drifting north for a while more. We would continue aiming for some higher levels in the short run, but as we already noted, we are reluctant to trust a long-lasting recovery in the pound.

As for the Rest of Today’s Events

From the UK, apart from the BoE decision, we also have the UK retail sales for May, while in the US, the Philly Fed manufacturing index for June, the current account balance for Q1, and initial jobless claims for the week ended on June 14th are due to be released. With regards to the UK retail sales, both the headline and core rates are expected to have declined to -0.5% mom, from 0.0% and -0.2% respectively. This would drive both the yoy rates down to +2.7% and +2.4%, from +5.2% and +4.9%, something supported by the tumble in the yoy rate of the BRC retail sales monitor for the month. As far as the US releases are concerned, the Philly Fed index is expected to slide to 10.6 from 16.6, while the nation’s current account deficit is anticipated to have narrowed somewhat. Initial jobless claims are forecast to have declined slightly, to 220k from 222k.

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