Date: 29 Jul 2019

The FOMC interest rate decision headlines a jammed-packed economic calendar this week, with the world’s largest economy widely expected to cut interest rates for the first time since the financial crisis. Most economists are expecting the Federal Reserve to cut interest rates by 25 basis points, although a 50 basis points rate cut is still on-the-table.

Inflation remains the key for the FOMC cutting rates this week, although another issue reason for cutting rates is starting to arise, the current strength of the U.S Dollar. With central banks around the world cutting rates and Sino-U.S trade talks re-starting, the U.S Dollar has been racing higher against most major currencies.

Strength in the greenback has become problematic, as the Trump administration is trying to reinvigorate the U.S economy and manufacturing sector; a strong U.S Dollar gives other countries an unfair advantage, according to President Trump. Just last week reports surfaced that the U.S President is actually seeking advice on ways to weaken the greenback, albeit through the FED or other measures.

Another key factor to consider on Wednesday will be the message the Federal Reserve convey to financial markets, specifically whether Wednesday’s rate cut is just an insurance cut or part of a cycle of interest rate cuts that may actually be ongoing. The U.S Dollar is likely to fall sharply if we see a 50 basis point rate cut and forward guidance from the U.S central bank that more interest rate cuts are coming.

Other major central banks are also out in force this week, with the Bank of Japan and Bank of England both deciding on interest rates, we also see the release of the Federal Reserve’s preferred measure of U.S inflation on Tuesday, core personal consumption expenditure index, prior to the FOMC rate decision on Wednesday.

 

USDJPY Candle Chart / Source ActivTrader

USDJPY Candle Chart / Source ActivTrader

 

After a relatively quiet few weeks, the USD/JPY pair is starting to test the upper limit of its trading range as bulls probe towards the 109.00 resistance level. A break above the 109.00 level is likely to lead to a technical test of the 110.00 to 1.1020 resistance area, while a sustained move back under the 108.37 level should be considered bearish and may expose further downside towards the 107.50 support area.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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