Markets cheer the new Fed policy on patience
The US dollar continued to decline after yesterday’s Federal Reserve decision. The Fed left interest rates unchanged and said that it would pause the planned interest rate hikes for this year. This was a change from the previous meetings where the bank sounded hawkish about the economy. In the statement yesterday, the Fed blamed the situation to the weakening global economy, low inflation rate, and the uncertainties of trade. Part of the statement said:
The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
The euro was little moved today after a series of weak data from Europe. In Italy, the country entered a recession after recording weaker growth in the fourth quarter. In the quarter, the economy sank by 0.2%, after declining by 0.1% in the third quarter. In a statement, the country’s prime minister, Giuseppe Conte said that this weakness will likely continue this year. For EU, data from Eurostat showed that the economy was still languishing. The economy expanded by 0.2%, which was unchanged from the previous quarter. In Germany, retail sales in December declined by minus 4.3%, which was a sharper decline than the -0.5% traders were expecting. The employment numbers were not good either. The unemployment change declined by 2000, which was worse than the expected 11K.
In the United States, numbers showed that the initial jobless claims were at 253K, which was higher than the consensus estimates of 215K. The continuing claims too rose to 1,782K, higher than the expected 1,735. These numbers could be attributed to the recent prolonged government shutdown. Meanwhile, in Canada, the GDP rose by an annualized rate of 1.7%. This was lower than the 2.2% gain in the previous month. The raw materials price index rose by 3.8% in December, which was lower than the expected 3.9%.
After yesterday’s sharp increase, the EUR/USD pair was little moved in today’s session as investors weighed the warning of the Fed and the deterioration of the European economy. The pair is now trading at 1.1485, which is slightly lower than yesterday’s high of 1.1500. On the hourly chart, the price is below the 100% Fibonacci Retracement level. It is also below the longer, medium and short-term moving averages as shown below. At the same time, the RSI has continued to remain below the 70 level. There is a likelihood that the pair will resume the upward trend and trade above the 1.1500 level.
After the sharp decline yesterday, the USD/CAD pair moved up today and reached an intraday high of 1.3158. On the hourly chart, the pair appears to be headed to the 1.3180 level, which is also the 23.6% Fibonacci Retracement level and also the 42-day EMA. This is also confirmed by the increasing tick volumes and the Bollinger Bands. The current price is along the upper line of the bands. However, there is also a possibility that the pair will resume the downward trend.
The USD/JPY pair continued the decline that started yesterday after the Fed decision. The pair reached the important support of 108.50. On the hourly chart, the pair remains below the short and medium-term EMAs while the RSI remains below the oversold level. There is a likelihood that the pair will continue to fall, potentially to the 108.00 level.