The dollar gave away some of its recent gains against most major currencies on Tuesday, ahead of today’s FOMC statement where the Federal Reserve is expected to increase its benchmark rate on Wednesday.
While interest rates are widely expected to increase, investors remain cautious about a potential change in tone on the health of the U.S. economy from Fed chair Janet Yellen, following recent weakness in the U.S. jobs market while a slump in energy prices threatens to lower the pace of inflation.
The dollar dropped to a two-month low against the Canadian dollar on Tuesday, following a surge in demand for the loonie, after a senior central bank official suggested that Canadian interest rates are poised to rise.
The move higher in the CAD was mirrored by a similar move in sterling, which recovered lost ground against the dollar, buoyed by data showing that UK inflation moved near to a four-year high.
For today, the UK is to publish its monthly employment report and the U.S. is to produce reports on retail sales and inflation.
Later in the day, investors will closely monitor the press conference from Fed chair Janet Yellen, following the Fed’s interest rate decision, for any clues about future monetary policy.
The pound rose on Tuesday after data showing that UK annual inflation hit a four-year high last month, while the dollar slipped lower against a currency basket as investors awaited the outcome of this week’s Federal Reserve policy meeting.
The annual rate of inflation in the UK accelerated to 2.9% in May, the Office for National Statistics on Tuesday said as the weaker pound continued to feed through to shop prices.
Despite this the BoE is expected to keep interest rates on hold when it announces its latest monetary policy decision on Thursday.
For today, The UK is to publish its monthly employment report while next week, negotiations on Britain's exit from the European Union which start next Monday will be in the spotlight.
Pivot: 1.2705
Support: 1.2705 1.268 1.2635
Resistance: 1.2825 1.287 1.2905
Scenario 1: long positions above 1.2705 with targets at 1.2825 & 1.2870 in extension.
Scenario 2: below 1.2705 look for further downside with 1.2680 & 1.2635 as targets.
Comment: the RSI shows upside momentum.
Gold
Gold prices traded slightly higher on Tuesday, following a drop in the dollar and despite expectations that the Federal Reserve will increase interest rates on Wednesday, something that has recently weighed on gold.
The Federal Open Market Committee (FOMC) is expected to hike its benchmark rate from 0.75-1% to 1-1.25% on Wednesday.
Investors, however, are keen to hear Fed chair Janet Yellen’s press conference to gauge on the status of the U.S. economy, after Friday’s weak jobs data.
Pivot: 1270.5
Support: 1262.5 1258.5 1254
Resistance: 1270.5 1276 1280
Scenario 1: short positions below 1270.50 with targets at 1262.50 & 1258.50 in extension.
Scenario 2: above 1270.50 look for further upside with 1276.00 & 1280.00 as targets.
Comment: as long as 1270.50 is resistance, expect a return to 1262.50.
WTI Oil
Crude oil prices settle higher on Tuesday, as investors await fresh U.S. crude inventory data expected to show a drop in crude inventories, offsetting concerns about a rise in output from OPEC members.
Crude futures started the day on the front foot, as Saudi Arabia pledged to reduce exports to customers in July, in an effort to help reduce the glut in supply.
Sentiment, however, turned negative later during the session, following Opec’s monthly report, showing that output from the group rose by 336,000 barrels a day in May. Rising production from both Nigeria and Libya were considered the main reason that the market was rebalancing at a slower pace.
In the week ahead, investors will continue to eye fresh inventory data to gauge the strength of demand in the U.S.
Pivot: 45.65
Support: 45.65 45.3 44.8
Resistance: 46.4 46.75 47.1
Scenario 1: long positions above 45.65 with targets at 46.40 & 46.75 in extension.
Scenario 2: below 45.65 look for further downside with 45.30 & 44.80 as targets.
Comment: even though a continuation of the consolidation cannot be ruled out, its extent should be limited.
US 500
The main U.S. indices moved higher on Tuesday, as technology stocks recovered from a two-day drop and financials gained momentum ahead of a widely expected interest rate hike from the Federal Reserve.
Elevated expectations of a June rate hike on Wednesday, spurred a move higher in financials, mostly banks, as Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) , and Citigroup (NYSE:C) ended the session in positive.
The focus on monetary policy overshadowed economic data showing a weakness in the jobs market and steady inflation in May.
The Dow Jones Industrial Average closed in record territory at 21328.41. The S&P 500 gained 0.45% while the Nasdaq closed up by 0.73%.
The focus is now shifted towards Wednesday’s FOMC decision.
Pivot: 2433
Support: 2433 2429 2425
Resistance: 2440 2443 2447
Scenario 1: long positions above 2433.00 with targets at 2440.00 & 2443.00 in extension.
Scenario 2: below 2433.00 look for further downside with 2429.00 & 2425.00 as targets.
Comment: the RSI lacks downward momentum. The prices remain within an intraday rising channel.