FED WATCH BEGINS ON TUESDAY
The global financial markets turn their attention to monetary policy on Tuesday, with the US Federal Reserve set to begin its two-day meeting in Washington.
The Federal Open Market Committee (FOMC) is widely expected to stand pat on interest rates when it concludes its meeting Wednesday afternoon. However, given that this is the last meeting before the fall, traders will closely monitor the language of the official statement. The FOMC has voted to raise interest rates three times since December. One additional hike is forecast this year.
Earlier this month, Fed Chair Janet Yellen told Congress that the central bank will maintain a steady hand in normalizing monetary policy. Yellen’s caution comes amid months of dismal economic data, including a sharp slowdown in inflation. Like other central banks, the Fed targets inflation at 2% annually.
A dovish rate statement on Wednesday could trigger fresh losses for the US dollar, which is trading near 11-month lows against a basket of world currencies. The dollar index (DXY) staged a mild recovery on Monday, but had given up its gains at the start of Tuesday trading. Since the start of 2017, the greenback has declined more than 8% against a basket of world peers.
In economic data, IFO will release its monthly barometer of German business confidence. The business climate index is forecast to decline slightly to 114.9 in July from 115.1 the previous month. The barometers measuring current economic conditions and future expectations are also forecast to dip slightly.
In North America, the S&P/Case-Shiller Home Price Indices will be released at 13:00 GMT. The data measure the changes in home values in the world’s largest economy.
The Federal Housing Finance Agency (FHFA) will also release the housing price index at the same time.
Finally, the Federal Reserve Bank of Richmond will publish its July manufacturing index.
The euro traded within a narrow range at the start of the week, as the market recent consolidated gains. The common currency has benefited from a pervasively weak US dollar and signs of stability in its domestic market. As a result, the EUR/USD is trading at multi-year highs. The pair faces immediate support at 1.1523, the 10-day SMA. On the upside, immediate resistance is located just above 1.1700.
The pound was also rangebound in early-week trade, although recent movement suggests traders are buying on the dip. This suggests that cable remains supported in the mid-1.29 range even as its rally attempts north of 1.3050 remain short-lived.
Oil prices returned to positive territory this week on news that Saudi Arabia was reducing crude exports. However, analysts at Credit Suisse have warned that prices will remain stuck below $60 a barrel through 2020, as an oversupplied market undermines any recovery attempt. Prices were last seen in the mid-$46.00 range. Traders should anticipate inventory data over the next two days.