US dollar rises slightly ahead of Fed rate decision

The euro declined slightly after JP Morgan released a report saying that the EU had 8 more years of negative interest rates. The note by the Wall Street bank came a week after the ECB lowered interest rates and announced a return of quantitative easing. In the same note, the bank warned that the ECB might lack the necessary tools to react when a recession comes. In the monetary policy statement, the ECB called for European governments to offer a fiscal stimulus. In a recent survey by Bank of America Merril Lynch, 235 fund managers who manage more than $683 billion said that fiscal stimulus from Germany would have a better market reaction than other issues like trade. Meanwhile, CPI data from the EU was unchanged. The headline CPI remained at 1.0% while the core CPI remained unchanged at 0.9%.

The sterling declined slightly against the USD after the Office of National Statistics released the CPI data for the month of August. The data showed that the headline CPI declined to 1.7% in August from July’s 2.1%. On a MoM basis, the CPI increased by 0.4%, which was lower than the consensus estimates of 0.5%. The core CPI, which removes the volatile food and energy products declined to 1.5% from the previous 1.9%. On a MoM basis, the core CPI increased by 0.4%. In the month, the PPI output dropped from 1.9% to 1.6% while the core RPI declined from 2.8% to 2.6%. The weak inflation data comes at a time when investors believe that the fears of a no-trading deal have eased.

The US dollar rose slightly ahead of the Federal Reserve interest rates decision. Whilst widely expected to lower interest rates, traders are not sure what the Fed will say in the accompanying monetary policy statement. In the previous statement, the Fed attributed the rate cut to a ‘mid-cycle adjustment’ to policy. This was interpreted as being hawkish for the market. Meanwhile, the US released housing numbers that were better than the consensus estimates. In August, building permits increased to more than 1.419 million, which was higher than the previous 1.317 million. In August, the housing starts increased by 12.3%, which was higher than the consensus estimates of 4.5%. The starts rose to more than 1.364 million, which was higher than the expected 1.25 million. In Canada, the headline CPI and core CPI declined to 1.9% from the previous month’s 2.0%.

EUR/GBP

The EUR/GBP pair rose slightly after the weak inflation numbers. The pair is trading at 0.8870, which is slightly higher than the previous low of 0.8835. On the hourly chart, the price is slightly above the 14-day and 28-day moving averages. The price is also between the 0.8835 and 0.8887 channel. There is a possibility that the pair will continue moving higher to reach the 23.6% Fibonacci Retracement level of 0.8910.

GBP/CHF

The GBP/CHF pair rose to an intraday high of 1.2430, which was the highest level since July 16. The movement was a continuation of a rally that was started on August 12, when the pair was trading at 1.1670. On the four-hour chart, the price is currently above the 14-day and 28-day moving averages. The RSI has remained slightly below the 70 overbought level while the signal and main lines of the stochastic oscillator have made a bearish crossover. While the pair could continue moving upwards, there is a higher probability that it will move slightly lower as it completes the cup handle of the cup and handle pattern.

EUR/USD

The EUR/USD pair declined today as traders waited for the Fed statement. The pair is now trading at 1.1055, which is slightly higher than the intraday low of 1.1035. This price is along the 28-day and 14-day moving averages. The average true range indicator has been unchanged. It has also been trading in a symmetrical triangle pattern as shown below. With the triangle nearing the tip, the pair will breakout in either direction after the Fed decision.