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    FOMC not that dovish | Europe set to rebound

    European markets suffered their heavy losses yesterday, but on track to regain their ground today after the U.S. FOMC statement last night showing the rate hike is still on track. Greek still stays the centre of focus for traders and any development is making the headline and having its own impact on the market. If we see that both sides are on the same train, it is perceived as a good news, and we do see more welcoming headlines from the ECB. This helps the euro to grind higher before it takes the nose dive once again, especially if the communication process breaks down without any fruitful outcome. However, the most likely outcome of this situation will be Greece throwing the towel and agree mostly to the creditors conditions.

    Back in the U.S., the FOMC statement was pretty much what already anticipated on the market with no surprise and the overall tone was more anchored towards the dovish side. The Fed did admit the weakness in the economic data with respect to the GDP reading for the first quarter, but they seem fairly confident that the weakness in the U.S. Q1 GDP data is temporary and mostly due to the seasonality reasons. Now, the forecast for the next quarter has been revised lower, the expectations are low, which is a similar pattern, which we have seen year over year. Although, our extensive research on this element does show that there is no particular reason that why the slowdown does takes place in the 1Q of the US GDP, but the macro model does point towards the inventory built in the fourth quarter, soft business climate, less defence inventory expenditure, weak consumer spending and bad weather – usually take the blame.

    Th Fed pretty much circled these areas in their statement and was not that worried about them. So, not that dovish then, I believe, but still not Hawkish enough to tilt the sentiment that June rate hike is back on the table. However, they made sure that the market understands and do not push back the expectations that the rate hike will not take place this year. We believe that the Fed are desperate to increase the rate, but just need a little bit more support from the economic data before they can actually trigger this.

    The most important data for the USD will be next week, which will impact the Fed decision and if we see the job number picking up strongly, then we could see the steam valve tightening up for the bull rally, which has lost its momentum recently. We do have the Chicago PMI and personal spending and consumption data today and this can certainly bring some volatility for the dollar. A strong reading can help the dollar to recover its losses against the Euro and sterling, which are mainly up due to the dollar weakness.

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