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US Federal Reserve Begins Two Days of Meetings to set Monetary Policy

By OFX

Major equity indexes in the United States started the day on a weak note and extended their losses as tech-giants continued to suffer sharp losses on disappointing earnings results. The tech-heavy Nasdaq 100 index dropped as much as 1.5% declining for a third-straight session. Netflix erased nearly 5% to lead the losses in the FAANG (Facebook, Amazon, Apple, Netflix, Google) group.

Looking ahead today on the US data front sees the release of the June Personal Consumption Expenditures (PCE) inflation report along with personal income & expenditure figures for the month of June all came in at estimates, yet Core Personal Consumption Expenditures missed a 1.9% vs consensus of 2.0%. The FOMC starts two days of meeting in regards to setting monetary policy, market expectations our for the Fed keep interest rates at the current 2.0%.

From a technical perspective, the US dollar is weaker against all the major pairs overnight. Currently trading against the Australian Dollar (0.7408), Great British Pound (1.3134) and Japanese Yen (11.03). The EUR/USD pair traded within familiar levels and in a limited intraday range of 1.1720. Against the Euro, we continue to expect support to hold on moves approaching 1.1660 while now any upward push will likely meet resistance around 1.1720.

The loonie yesterday continued its strengthening trend which was started last week on broad USD weakness and a 2% increase in WTI crude oil prices amid potential supply disruptions.

Overnight the loonie was under pressure following reports that American officials had taken the “highly unusual” step of rejecting Canada’s bid to take part in senior-level NAFTA talks between the U.S. and Mexico later this week. USD/CAD pushed 50+ points higher on the news.

This Moring focus was on the release of Canadian May GDP figures. Canadian GDP year over year for May quickened to 2.6% versus estimates of 2.3%, while May month over month saw growth of 0.5% vs estimates of 0.3%. The loonie made gains across the board against is G10 currency counterparts.

The Euro rose 0.40% to 1.1705 amid broad USD weakness and a strong Swedish GDP number. Yields in the US spiked less, in relative terms than other major currencies as the market positioned itself for the end of month flows and potential monetary policy changes in Japan and the UK. The underperformance of US yields weighed on the USD and the EUR/USD traded as high as 1.1719.

EUR/USD is rallying a bit this morning too and has pushed as far as 1.1730 this morning, helped on its way by the release of better than expected French Prelim CPI. Earlier this morning, we received the European CPI Flash Estimate, Flash GDP, and unemployment. Euro CPI expanded higher to 2.6% vs estimates of 2.4%.

Range-bound trading in GBP/USD continued on Monday amid a lack of economic data or any fresh or major political/Brexit headlines. GBP investors are also seemingly taking a cautious approach to trading ahead of Thursday’s Bank of England monetary policy announcement. On this note, the odds of a rate hike on Thursday are priced at around 90%, and a rate hike thereafter (and before the end of the year) at about 12%.

The UK data docket is looking a little light again today so expect the steady range in GBP/USD to ensure, at least during the morning. Attention turns to a US economic data including Core PCE Price Index m/m, Employment Cost Index q/q, Personal Spending m/m, Personal Income m/m, Chicago PMI and CB Consumer Confidence at which point we may see a bit more movement in GBP/USD and EUR/USD.

The Australian dollar offered little to excite investors through trade on Monday maintaining a tight 30 point handle, ignoring broader equity weakness and a general risk-off environment. Broader risk sentiment was weighed down by another day of heavy losses across US tech stocks and with little news flow prompting direction the AUD struggled to mount any meaningful extensions towards support or resistance. Edging upward to touch intraday highs at 0.7413 the AUD opens this morning at 0.7407 as attentions turn to key central bank commentaries.

The Bank of Japan meets today amid rumors it will tweak its monetary policy stimulus program. In a bid to ease pressure on its domestic banking sector the BOJ is expected to amend its yield curve controls, a move that could prompt an until in Japanese Government Bond yields, reducing Japanese institutional investors demand foreign bonds and prompting a re-direction in assets back towards the Yen. While the bank is unlikely to make any wholesale changes to its stimulus program without a caveat of extended accommodative policy across other tools a shift could force a break outside recent ranges and see the AUD test lows at 0.7320.

With little headline data on the domestic docket, all eyes are on the BOJ today as the marker for broader direction.

The New Zealand dollar drifted higher on Monday against a softer Greenback as investors wait for a number of central bank meetings. Japan, the US, and the UK all meet this week and the outcomes could determine the direction of currencies. The NZD/USD pair closed the Asian session a shade above 68c and touched a high of 0.6834, to close in New York around 0.6825.

On the data front, local economists will be closely watching the release of ANZ Business Confidence. The survey has reported negative confidence for the past nine months, headline business confidence deteriorated further in June and may remain weak in July.

Levels to watch – Support located at 0.6720 and resistance remains located at 0.6860.