Global macro overview for 13/06/2018

The two-day meeting of the Federal Open Market Committee (FOMC) ends on Wednesday 13 June with the publication of the decision on interest rates at 06:00 pm GMT. The global investors expect an increase in the target for the federal reserve rate by 25 bp to 1.75-2.00%. Together with the decision, the macroeconomic statement and forecasts will be published. The press conference of Fed chairman Jerome Powell is scheduled for 06:30 pm GMT.

The Fed has no reason to delay the hike and it seems almost certain that it will decide to raise interest rates. The market is in line with expectations and measures the probability of Fed’s movement over 90%. Since the last decision to raise in March, the US economy has been developing dynamically. The second quarter, as expected, brings the acceleration of recovery. Private consumption reflects, and the dynamics of corporate investment accelerates. Importantly, the unemployment rate fell sharply by 0.3 percentage point to 3.8%, already reaching the average FOMC forecast for the entire 2018. With the average increase in employment in the first five months of the year above 200,000 one can safely assume that unemployment will continue to fall. This is a good outlook for wage pressure and inflation, which has already approached the 2.0% target. The PCE Core core inflation measure preferred by the Fed in April was 1.8% and the broader PCE ratio was 2.0%, additionally supported by an increase in energy prices.

There is no shortage of risks that were exchanged at the meeting in March and last for the second quarter. Trade tensions between the US and Mexico, Canada, China and the Eurozone can undermine business confidence, although not yet visible in the data. In addition, the Italian political crisis raised concerns about the economic prospects of the Eurozone and increased volatility on the financial markets, although in the last week these tensions clearly decreased. Despite these risks, positive arguments prevail. Accelerating growth with the support of fiscal expansion, declining unemployment rate and inflation close to the target allow the Fed to maintain the direction of “further gradual raising of the federal reserve rate” and to make a hike in June.

What does it mean for traders? As the almost certain interest rate hike is priced in by market participants already, there should not be much change in the general direction of the US Dollar, so the uptrend should be continued and Dollar should appreciate again across the board.

Let’s now take a look at the US Dollar Index technical picture at the H4 time frame. After the top at the level of 95.03 the market started a corrective cycle, that pushed the prices out of the channel. The bears have managed to make the low at the level of 93.20 and since then the price is slowly rising. The biggest concern for bulls is the internal golden trend line resistance around the level of 93.90 that prevents the price to rally higher. A breakout above this line will open the road towards the level of 94.31 and even swing top at the level of 95.03. The positive momentum and stochastic support the bullish bias.


The material has been provided by InstaForex Company –