MARKETS ON STAND BY FOR YELLEN’S SPEECH
The focus of the market today will be the FOMC statement on monetary policy that will be published at 18:00 GMT. Investors do not expect a rate hike today, but the US central bank may decide to start reducing its balance sheet from the current 4.5 trillion dollars. Details about the timing and the scale of balance sheet cuts may influence investor sentiment. Traders will also be monitoring the FOMC economic projections that will also be released at 18:00 GMT. A spike in volatility is predicted after the Fed’s chairwoman Janet Yellen’s speech during which she may outline the Fed’s opinion about the recent acceleration of inflation and the labor market data missing forecasts. In case of hawkish rhetoric, we may see a massive selloff of the EUR/USD. Some pressure on the greenback came from the existing home sales report, according to which the indicator has fallen to 5.35 million in August against the 5.46 million forecasted.
The USD/JPY retreated downwards amid profit taking ahead of the FOMC statement and from the Japanese trade surplus report that showed 0.37 trillion yen in August versus the 0.41 trillion yen expected. The demand for the yen as a defensive asset may rise in case of geopolitical tensions grow or if the stock markets take a dip. Traders are also waiting for the Monetary policy statement from the Bank of Japan at 03:00 GMT tomorrow.
Another important event investors should be on the lookout for this evening is the GDP report in New Zealand that will be published at 22:45 and may partially offset the influence of the FOMC statement on the NZD/USD.
The EUR/USD quotes are consolidating near the 1.2000 level and keep moving within the local rising channel. After the end of the current sideways movement there is a high possibility of sharp moves. Breaking through the lower limit of the channel may result in drops to 1.1925 and 1.1825. On the other hand, the price may resume upward dynamics with the first goal at 1.2070.
The USD/JPY was not able to gain a foothold above the 111.70 mark and rolled back. We do not exclude the growth resuming with potential upsides to 113.00 and 114.70. Breaking through the closest support at 111.00 will likely force the bears to pull the pair down with possible objectives at 110.30 and 109.60. Volatility is likely to rise soon.
The NZD/USD is testing the local resistance at 0.7375 and its overcoming will help the bulls to push the quotes up to 0.7400 and the upper boundary of the local ascending channel. The RSI on the 15-minute chart approached the overbought zone, indicating a possible downward correction in the near future. The immediate goals in case of a fall may be located in the 0.7250-0.7300 range.