FED REMAINS OPTIMISTIC ABOUT INFLATION
The US dollar soars after the Fed’s statement on monetary policy. The Fed yesterday decided to increase interest rates in America by 0.25% to 1.00-1.25%. At the same time, it was clear that the slowdown in inflation that scared USD bulls yesterday is expected to be a temporary factor which is mostly due to the fall in petroleum prices. The US central bank still forecasts three rate hikes during this year and that will put pressure on other world currencies.
The common currency keeps falling since yesterday and additional support for bears has come from the trade balance report showing that the surplus in the Eurozone for April was just 19.6 billion euro against the forecasted 22.8 billion euro. Later today, unemployment claims were published in the US showing a decline in the last week by 8 thousand to 237 thousand. Disappointing statistics on zero growth in American industrial production could not change the mood of traders.
The British pound shows a high level of volatility due to external factors and political instability inside the country after parliamentary elections. Monetary policy settings of the Bank of England have been left without changes, but the decline of retail sales in May by 1.2% raised concerns about the strength of British economic growth.
The benchmark of crude oil in the US – WTI is consolidating after a strong decline yesterday. Bears are trying to pull the price down amid data on oil inventories in the country showing an increase in drilling rigs.
The EUR/USD demonstrates a confident decline amid the dollar strengthening and weak data on the trade balance in the euro area. We assume that the downward impulse is supported by the fixing of long positions. As a result of the decline, quotes have broken through the lower boundary of the medium-term rising channel and the support at 1.1160. This fact points to the possibility of further price drops to 1.1100 and 1.1020. In a case of an upward correction, EUR/USD may return to 1.1200. RSI on the 15-minute chart is near the oversold zone that that usually means the exhaustion of downward impulse.
The pound is moving within the 1.2680-1.2800 range. The volatility remains elevated because of political uncertainty in the UK after the Conservative party could not get a needed majority during the parliamentary elections. The Bank of England decided to keep the parameters of monetary policy without changes and there are no hints on the timing of interest rates hikes during this year. If the price manages to gain a foothold above the resistance at 1.2800, increases may continue to 1.2860 and 1.2940. Quotes are likely to continue the direction in the nearest future within the 1.2680-1.2800 corridor and the trigger for the further decline may come by breaking through the support at 1.2680.
Positive data on the labour market in Australia could not change the negative mood of traders that is due to the USD strengthening and the fall of commodities markets which traditionally influence the Australian dollar. The unemployment rate reduced by 0.2% in May to 5.5% and the number of employed increased by 42 thousand that is much better compared to the average forecast of 9.7 thousand. On the price chart, we see the possibility of a “double top” formation, which is the reversal pattern. The reason for the sharp decline with the first targets at 0.7520 and 0.7420 may come by breaking through the support at 0.7565. Growth is likely to be restrained by the levels of local highs near 0.7635.
The New Zealand dollar is falling today due to the strong US dollar and weak data on the country’s GDP growth. Economic expansion in the first quarter has not met the forecasted figure of 0.7% and was only 0.5%. As a result, quotes approached the strong support line at 0.7190, which together with the RSI near the oversold zone on the 15-minute chart, points to the possibility of a price rebound with the first target at 0.7225. On the other hand, breaking through 0.7190 may confirm the trend change to negative with the fall potential at 0.7110 and 0.7050.
The rising confidence in three rate hikes by the Fed during this year and the appreciation of the US dollar keep pushing quotes of the precious metal. We should recall that an increase in interest rates in the US makes gold less attractive compared to safe haven assets with an interest-bearing income. Currently, quotes are located around the lower limit of the descending channel and the support at 1254 and in the case of further decline the closest targets will be 1244 and 1230. The possibility of an upward correction after a sharp fall is increased and the first goals in this situation may be 1260 and 1265.
The data on oil inventories in the US which declined by only 1.7 million barrels during the last week and the growth of the greenback have led to a sharp fall in oil prices yesterday. Currently, traders are in no hurry to accumulate positions before tomorrow’s news on the active drilling rigs count in the US. The efforts of OPEC and some other major oil producers like Russia are proving fruitless thanks to the growth in oil drilling activity in the US and it is a fundamental reason for the further decline. After a long consolidation, we may see a sharp movement within the current downward channel. For the negative trend to change to positive the quotes need to gain a foothold above 46.00. The price has reached the SMA100 and now may resume the fall with the first goal at 43.00.