US futures slide as the FOMC starts its two-day meeting
The selling pressure on the sterling continued today as the currency reached a new two-month low. The currency has declined by 4% since the end of June, leaving it on track for the worst month since October 2016. It is also the worst-performing currency among the key G10 currencies. Implied volatility of the currency over a three-month period has risen by the widest margin since the financial crisis of 2008. Investors are worried that the country will leave the EU without a deal. According to the Bank of England, this would lead to a 8% decline of the country’s GDP in the first year.
US futures declined as Fed officials started their two-day monetary policy meeting. The officials will release the interest rates decision tomorrow and are expected to lower interest rates by 25 basis points. Investors were also worried about weak corporate data. Bayer stock declined after the company warned on future profits as Roundup plaintiffs increase. Lufthansa issued a profit warning, blaming stiff competition and rising fuel prices. In the US, Capital One stock declined after the company announced a huge data breach that allowed hackers to access information in more than 100 million people.
Economic data from Europe showed some weaknesses. In Sweden, data from the statistics office showed that the economy expanded by 1.4% in the second quarter. This was lower than the consensus estimate of 1.9% and the Q1 growth of 2.1%. In the EU, business and consumer confidence too declined. Business climate declined to -0.12 from the previous 0.17 while industrial sentiment declined by -7.4 from the previous -7.2. The sentiment in the services industry declined to 10.6 from the previous 11. Meanwhile, in Germany, the headline CPI rose by 1.7% in July while the harmonized inflation consumer price index rose by 1.1%. The latter was lower than the expected 1.5%.
In the United States, the core PCE price index rose by 1.6%, which was lower than the consensus estimate of 1.7%. Personal income remained unchanged in June to 0.4% while personal spending declined to 0.3% from the previous 0.5%.
The GBP/USD pair declined to an intraday low of 1.2120. On the four-hour chart, the pair is trading below the 25-day and 50-day moving averages while the RSI remains below the oversold level of 30. The price is also along the lower line of the Bollinger Bands. While the pair could continue moving lower, there is a likelihood that the price will make a minor recovery ahead of the Fed rates decision tomorrow.
The XAU/USD pair rose as investors waited for a dovish statement from the Fed tomorrow. The pair reached a high of 1430. On the four-hour chart below, the pair is trading along the upper line of the Bollinger Bands. It is also slightly above the 25-day moving averages. The RSI too has been rising. The pair will likely continue moving higher ahead of the interest rates decision.
The EUR/USD pair rose slightly to a high of 1.1160, which was slightly higher than the weekly low of 1.1100. The current price is slightly below the 23.6% Fibonacci Retracement level. The price is slightly above the 25-day moving average and slightly below the 50-day moving averages. The pair could continue moving higher to test the 23.6% Fibonacci Retracement level of 1.1175.