FOMC minutes confirm 50bps hikes in June and July (USD/JPY, GBP/USD)

Whilst the FOMC minutes helped lift the dollar and Wall Street on the day, but we’re not convinced the dollar low is in just yet.

FED 3

  • The USD was broadly higher overnight as the FOMC minutes confirmed the Fed will hike rates by 50-bps at their June and July meetings.
  • Wall Street also closed higher as the minutes provided some comfort that the Fed think the economy as strong and can raise rates without triggering a recession.
  • We’re questioning as to whether the Fed really can tame eye-watering levels of inflation without triggering a hard landing.
  • The Fed will be crossing their fingers for Q1 GDP to be upwardly revised today, because another print of -1.4% or worse could exacerbate concerns of stagflation.
  • The Fed may find themselves treading on eggshells by September.

 

20220526moversFX  

The Fed minutes have confirmed ‘most participants’ are on board to hike by 50-bps at their next two meetings. This would be their third 50-bps hike in as many meetings and take interest rates to 2% by July. With inflation risks ‘skewed to the upside’, markets are pricing in rates to finish the year at 2.75%, although only with a 58.9% probability. And that is because we’re all questioning as to whether the Fed really can tame eye-watering levels of inflation without triggering a hard landing.

The minutes also raised concerns that if inflation expectations remained elevated it would become difficult to guide inflation back down to 2%. The Fed may find themselves treading on eggshells by September, as they’re aiming to tame hot inflation whilst targeting a soft landing within a low-growth environment.

And that is going to make today’s GDP revision of great interest, after the initial release saw growth unexpectedly contract by -1.4%. The Fed will be crossing their fingers for Q1 GDP to be upwardly revised today, because another print of -1.4% or worse could exacerbate concerns of stagflation. We already heard Bostic saying this week that they may need to take a pause [from hiking rates] in September. It’s therefore interesting that the minutes stopped shy of being so confident of 50-bps hikes after July.

Remember, the Fed don’t simply announce policy U-turns. So if we hear a growing chorus of other members mentioning a potential pause around September, we know the Fed are getting cold feet. And who could blame them, with consumer confidence at multi-year lows and cracks appearing in the rendering of the housing sector.

Gains for the dollar where underwhelming, considering how hawkish the Fed are. So there may have been some short covering in there, but upside volatility was underwhelming to say the least. We expect NZD to recoup much of its lost ground after the RBNZ lifted their OCR forecast to 3.9% by the year end.

 

Everything you need to know about the Federal Reserve

 

 

USD/JPY: 4-hour chart

We saw the countertrend rally towards the monthly pivot point, as we suggested yesterday. And we are now keeping a close eye on its potential to move lower. Resistance has been found around the 200 and 20-bar EMA’s, and lower trendline of a descending triangle. A bearish inside candle has also formed on the 4-hour chart. Our bias is bearish below the monthly pivot point (black line) and bearish targets include the weekly S1 pivot and 126.30 triangle target.

20220526usdjpyFX

 

GBP/USD: 1-hour chart

20220526gbpusdFX

GBP/USD has been within an uptrend since the 16th of May, although the rally stalled at the 1.2600 resistance zone. Support was found around 1.2472 and bullish momentum is now increasing back into resistance. A bullish inside day formed yesterday, so we’re now looking for a breakout above 1.2605 to assume bullish continuation.

Our bias remains bullish above the 1.2522 low and for a rally to the 1.2700 resistance area. However, a small bullish flag is also forming, so perhaps we’ll see a direct breakout in the European or US session, in which case our bullish bias would be above the flag low.

 

 

 

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

  

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account