FOMC kept rate steady at 2% as expected

The Dollar climbed to seven-week peaks against the Euro and major currencies on Tuesday, as oil prices plunged and the Federal Reserve maintained its focus on slowing persistent US inflation pressure in the economy. Analysts said Tuesday's Fed statement was more balanced than what the market had expected, as it expressed concern about both economic growth and inflation. Another comment showed the Fed statement does not point to one clear rate path. The drop to a three-month trough of $118 per barrel helped ease fears that high energy prices will continue to weigh on the US economy at a time consumer prices are showing an unexpectedly fast rise. AudUsd was among the weakest performers on Tuesday, falling to a four-month low at 0.9133.

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The Dollar climbed to seven-week peaks against the Euro and major currencies on Tuesday, as oil prices plunged and the Federal Reserve maintained its focus on slowing persistent US inflation pressure in the economy. FOMC kept rates steady at 2%. Investors were disappointed that there was only one dissenter to the Fed decision, with Dallas Fed President Richard Fisher opting for higher rates.

Overall, the dollar kept its bid tone. Analysts said Tuesday's Fed statement was more balanced than what the market had expected, as it expressed concern about both economic growth and inflation. Another comment showed the Fed statement does not point to one clear rate path. Following the Fed decision, chance for the Central Bank to increase benchmark rates by 25bp in September fell as low as 24% from 34% earlier. The first 25bp rate increase by the Fed is not priced until a rate-setting meeting in January, although a rate increase in December is still 90% priced in. The Fed made no mention of the recent weakness in commodity prices, except by saying that "earlier increases" in commodity prices have resulted in higher inflation and inflation expectations.

EurUsd was down 0.67% at 1.5466, having traded as low as 1.5447, the lowest since June 16th. UsdJpy rose 0.11% to 108.35 rebounding from 107.67 earlier low. UsdChf rose 0.51% to 1.0538 after hitting 1.0560 2 1/2-months high. GbpUsd dropped 0.3% to 1.9555.

The drop in oil helped ease fears that high energy prices will continue to weigh on the US economy at a time consumer prices are showing an unexpectedly fast rise. Oil fell to a three-month trough of $118 per barrel while Gold sank 2.2 percent to 874.10 per ounce. Oil last traded down 2.3% at $118.60.

AudUsd was among the weakest performers on Tuesday, falling to a four-month low at 0.9133. The Reserve Bank of Australia kept interest rates at 7.25% percent on Tuesday but sent a strong signal it will ease soon amid tighter credit conditions and slowing demand. It was last down 1.32% at 0.9168.





Today's Key Issues (time in GMT):


01:30 AUD June Housing Finance -3.7% vs -7.9%
01:30 AUD June Invest housing finance -0.3% vs -6.8%
05:00 JPY June Leading Indicator -1.8 vs -0.2
10:00 EUR June Germany Industrial orders 0.4% vs -0.9% (MoM)
14:00 CAD July Ivey PMI 59.5 vs 69.6
The Risk Today:

EurUsd:
Market dropped to 1.5447 low yesterday. Further weakness might undermine the current 3-month uptrend. This may confirm the 1.5400 – 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low. Key initial resistance holds 1.6000. A break up there would open the way to Trendline resistance 1.6200. Initial support holds 1.5447


GbpUsd:
Cable broke down last week the short term 1.9800 – 2.0100 trading range. It hit 2.0158 high 3-week ago and 1.9522 low yesterday. Key level holds 2.0100 resistance. On the downside, yesterday break below 1.9649 support open the focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Initial support holds 1.9522 yesterday low. Strong support holds 1.9363 20th February and 14th May low.


UsdJpy:
Last two-week recovery pushed the market up to 108.41 yesterday. This Dollar rebound put focus on mid-June 108.59 resistance and 110.10 strong resistance (Trendline). Further advance would open the way toward 111.92 early January high. On the downside, a return below 105 may open the way toward 102.73 support and 100 pivot point.


UsdChf:
Last two-week Dollar strength pushed over 1.0500 last week. Initial resistance holds 1.0523 30th July high. Market hit yesterday 1.0560 high. This is confirming the view for a 1.0200 – 1.0600 consolidation range. Renewed weakness below 1.0200 would retest the 1.0000 pivot point and may open the way toward 0.9637 17th March low.



Resistance and Support:




By
Jean-Claude Braha
- ACM Advanced Currency Markets, Geneva, Switzerland