Markets Tune to Statement from Federal Reserve to Determine Direction
Market participants watching today’s event calendar will most likely focus on the meeting between FOMC members in the United States and the RBNZ’s interest rate decision. Neither policy-molding body is expected to enact changes to rates, but hints should be easily gleaned as to the forward direction and considerations both Central Banks will take.
Yesterday’s report in the United Kingdom showed GDP growth in the third quarter is slowing slightly, with expectations of 0.60% growth being disappointed by the printed 0.50% and coming in contrast to last quarter’s 0.70%. The major contributor to GDP in this report is the services sector, which grew 0.90% up from 0.80% in the prior period. However, services numbers are also flying in below expectations, and manufacturing and construction figures are keeping up the pressure on the final GDP figures. Though services did gain slightly, these other two sectors weigh heavily on the outlook. Parallel to sentiment, the reaction in the Pound was initially negative, but the lack of truly dire news drew out a modest recovery before closing near session lows at 1.5303.
Previous quarter consumer inflation in Australia was 0.70%, so naturally the official figures for this quarter of only 0.50% are dragging on outlook. Despite inflation troubles around the world, the expectation for third quarter price growth was the same 0.70% from quarter two, and core inflation missed estimates by another -0.20% to land at 0.30% growth. Australia has been hit in a tender area concerning commodities price issues, though accommodating policy from the Reserve Bank of Australia has tried to keep important economic metrics steady. As far as the news goes for the annual comparison, the 1.50% annual growth as of the latest report has indicated to some analysts that the RBA will fail to reach 2015 inflation targets. Accordingly, the Aussie dollar dropped -0.95% versus the US dollar, trending near 0.7118.
The second day of FOMC deliberation regarding monetary policy in the US is forecast to see no changes to be announced, and the lack of press conference means that the final statement is what traders are awaiting. Poor domestic reports on statistics like payrolls indicate that the FOMC will hold off on a rate hike for October, and even December is not being regarded as a likely date for liftoff. Markets are paying close attention to the tone of the report however, which may affect trading today if a drastic change in opinion is noted. In the unlikely event that an immediate plan of action is announced, markets will be volatile. Current trends in EURUSD have seen the pair exhibit a bearish doji candlestick pattern after the close yesterday, with the pair failing to break through highs at 1.1070.
EURGBP Equidistant Channel Trading Opportunity
Following the latest UK data disappointments in the form of reduced growth numbers, the Pound has continued to give up ground versus peers as the probability of an early 2016 rate hike is reduced. Along with the recent recovery in the Euro following the prior week’s losses on the backs of the dovish ECB, the EURGBP pair continues to recover to the upside following the drastic slide. The upward trending equidistant channel pattern emerging in the EURGBP pair has a strongly bullish bias with ideal positions taken at the lower channel line targeting the upper channel line for an exit. A move below the lower channel line could be indicative of a channel-based breakout to the downside to be confirmed by additional momentum and volume.