Global stocks retreat as FOMC starts its monetary policy decision
Global stocks declined today as the market paused ahead of the Federal Reserve interest rate decision. In Europe, the DAX index, FTSE 100, and CAC 40 indices declined by 2%, 1.66%, and 1.88% respectively. In the United States, futures tied to the Dow Jones and S&P500 declined by 1% and 0.90% respectively. According to Reuters, most analysts polled expect the bank to leave interest rates unchanged and attach further increases to inflation. The bank will also likely maintain the ongoing open-ended quantitative easing program. The biggest corporate news today was from Hong Kong, where the government agreed to bailout Cathay Pacific, the embattled airline.
The euro declined as traders digested mixed data from the eurozone. Earlier in the day, data from Germany showed that exports and imports declined sharply in April. Exports fell by 24% while imports declined by 16.5%. Exports to France and Italy declined by almost 50%. As a result, the country’s trade surplus narrowed to 3.2 billion euros from the previous 12.8 billion euros. Meanwhile, the eurozone economy contracted by 3.6% in the first quarter and by 3.1% on a year on year basis. This decline was spread across the region. At the same time, the employment change increased by 0.4%, which was better than the expected 0.3%.
The Japanese yen continued to rise against the US dollar as more global risks emerged. Earlier today, North Korea said that it will end its communication with South Korea. The country has been disappointed with the lack of progress in the nuclear talks. Specifically, the country has cited the continued sanctions by the United States. Meanwhile, the decision by the US to remove troops from Germany risks escalating geopolitical tensions in Europe. Japanese yen also reacted to the decision by S&P to revise Japan’s outlook to stable because of the large deficits.
The EUR/USD pair declined after the mixed data from Europe. The pair is trading at 1.1273, which is below Friday’s high of 1.1380. On the four-hour chart, the price is still above the 50-day and 100-day EMA while the RSI has moved from the overbought level of 78 to the current 50. Also, the on balance volume has been falling. This means that the pair may decline slightly as bears attempt to move below 1.1200.
The GBP/USD pair declined to an intraday low of 1.2618 as traders waited for the FOMC rate decision. On the four-hour chart, the price is above the 61.8% Fibonacci retracement level. It is also along the previous resistance level of 1.2645. Meanwhile, the RSI has dropped from the previous high of 74 to the current 54. This means that the pair may continue falling as bears target the 61.8% retracement of 1.2500.
The FTSE 100 index declined to an intraday low of £6348, which is the lowest it has been since Friday. On the daily chart, the price is slightly above the 50% Fibonacci retracement level and along the 100-day exponential moving average. The index has also formed a bearish engulfing pattern, meaning that the price may continue to fall as bears attempt to test the important support at £6250.