Fed Officials Send Conflicting Signals, BoE Decides on Rates

EQUITIES PULL BACK ON NEW HAWKISH REMARKS BY FED MEMBERS

The US dollar continued trading lower against all but one of its major peers on Wednesday and during the Asian session Thursday. It gained only against JPY, while it lost the most ground versus NZD, AUD, and GBP.

AUD/JPY — TECHNICAL OUTLOOK

AUD/JPY has been in a recovery mode since June 21st, when it hit support at 82.14. However, the recovery was paused near the 84.16 barrier. Overall, the pair remains below the prior upside support line drawn from the low of March 24th, as well as below the downside line taken from the high of May 10th. With that in mind, we believe that the pair may not have much room to recover further, and that’s why we will adopt a cautious stance for now and wait for trader’s reaction near those lines.

WILL THE BOE SOUND MORE OPTIMISTIC?

As for today, market participants are likely to shift their attention to the UK and the BoE monetary policy decision. When they last met, British policymakers kept interest rates unchanged, but they proceeded with a technical change in which the pace of weekly bond purchases slowed down. That said, they reaffirmed that “as measured by the target stock of asset purchases, that stance remains unchanged”, adding that the QE slowdown is not a material change and that they are ready to reverse it if deemed necessary. With regards to their economic projections, they expected the UK economy to recover to pre-pandemic levels over the course of this year, while on the inflation front, they said that it may rise above 2% towards the end of the year, but this is likely to be due to transitory effects and thus, the rise may prove to be temporary.

GBP/USD — TECHNICAL OUTLOOK

GBP/USD traded in a consolidative manner during the Asian trading today, after hitting resistance near 1.4005 and pulling back yesterday. Similarly to the AUD/JPY pair, Cable has also been in a recovery mode recently, but still remains below the prior upside support line drawn from the low of April 12th, as well as below a downside line taken from the high of June 1st. Taking that into account, we would stay a bit skeptical as to whether the recovery could continue for long.

AS FOR THE REST OF TODAY’S EVENTS

Besides, the BoE decision, we also have the German Ifo survey for June, the final US GDP for Q1, and the US initial jobless claims for last week. All three of the Ifo indices are forecast to have risen somewhat, while the final US GDP is expected to confirm its 2nd estimate of 6.4%. Initial jobless claims are forecast to have declined to 380k from 412k the week before.

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