USD GAINS AS FED POINTS TO MORE TIGHTENING
The Federal Open Markets Commission (FOMC) raised interest rates by a quarter percentage point to 2 – 2.25%. This was the third rate hike this year and the eighth in the tightening cycle that started in 2015. The committee said that it remained supportive of more rate hikes despite the challenges that lie ahead. The yield curve is edging closer to inversion, the trade war is going on, and the GDP is expected to start slowing down. The forward guidance by the Fed is for another rate hike in December, three in 2019, and one in 2020.
The Reserve Bank of New Zealand (RBNZ) left interest rates unchanged at 1.75% and indicated that this level could remain through 2019 and into 2020. The bank last raised interest rates in 2016. In an official statement, the bank said that while the economy remained strong, the low interest rate policies will continue to provide the necessary support particularly for the weaker Kiwi, which helps to prop up the exports industry.
It will be another significant day for the USD as traders wait for crucial economic data. Today, the government will release the final reading for GDP. The first reading showed that the economy grew by 4.1%, followed by 4.2% in the second reading. Today, traders expect the number to show that the economy rose by 4.2%. In addition, the jobless claims numbers, and durable goods order numbers will be released.
The Canadian dollar fell sharply against the USD after the US sent signals that it will move ahead with a new NAFTA deal without Canada. Donald Trump said that he turned down a meeting request from Trudeau. Canadian officials responded saying that no such meeting was planned in the first place.
Last week, the USD/CAD pair reached a double bottom at around the 1.2880 level. Since then, it has been moving higher and in the Asian session today, it reached a high of 1.3045. The current price is between the 38.2% and 50% Fibonacci Retracement level, with the 14 and 28-day EMA showing signs that it will keep moving higher. In the short term, it will likely test the 1.3063 level where it will find some resistance. It will then likely continue moving higher.
This month, the EUR/USD pair has moved up, establishing a channel of diagonal support and resistant points as shown in the hourly chart below. The pair was little moved after the Fed decision yesterday. It now remains at the lower part of the channel. A high volume below the support level will likely lead to more downward movements for the pair. The alternative is that the pair will likely move to the upper side of the channel and test the resistance at 1.1820.
In the Asian session today, the USD/JPY pair reached the important level of 113.18. This was an important resistance level. As expected, the pair then started moving slightly lower and is now trading at 112.73. Today, the pair will likely remain around this level as bulls and bears compete on the next direction. A strong break above the 112.73 will see it test the 114 level.