Daily Commentary | 06/07/2018
Further stabilization on Korean peninsula ahead
• The Kim-Trump meeting was completed yesterday with both parties signing a joint document. According to media, the joint document included “security guarantees” for N.Korea from the US president and the US may stop joint military exercises with S. Korea. On the other hand, N. Korea pledged unwavering commitment to the denuclearization of the Korean peninsula among other points. Sanctions against N.Korea are to remain in place and the denuclearization process is to start “very,very quickly “ as per President Trump. Should there be further positive headlines about the issue we could see the USD strengthening while safe havens could weaken.
• USD/JPY rose yesterday breaking the 110.45 (S1) resistance line (now turned to support). We see the case for the pair to continue to have bullish tendencies as the FOMC interest rate decision could support the USD side. Technically, the upward trend line which started to form since the 11th of June could strengthen the argument for a further upside movement of the pair. Should the bulls continue to be in charge, we could see the pair breaking the 111.00 (R1) resistance line and aim for the 111.60 (R2) resistance hurdle. Should the bears take over, we could see the pair breaking the 110.45 (S1) support line.
All eyes on the FOMC
• The FOMC is going to announce its interest rate decision today at 18:00 (GMT) and is widely expected to hike rates by 25 basis points reaching +2.00%. Fed’s Funds Futures currently, imply a probability for the FOMC to hike rates by 87%. Hence, market focus could shift to the accompanying statement and the dot plot for further clues about future rate hikes. We see the case for the bank to have a neutral to hawkish accompanying statement as the US economy had favorable financial releases recently. Also, should the Fed’s forecasts alter, based on the recent acceleration of the inflation rate and the favorable employment report, we could see the dot plot implying a four rate hike path in 2018. Overall, the greenback could strengthen from the interest rate decision and the following press conference.
• EUR/USD moved in a sideways motion yesterday between the 1.1820 (R1) resistance line and the 1.1715 (S1) support line. Technically, the pair seems to be moving in a sideways manner for the past few days. The pair could drive south today, as the FOMC meeting could support the USD side. Should the pair come under selling interest we could see it breaking the 1.1715 (S1) support line and aim for the 1.1640 (S2) support barrier. Should it find fresh buying orders along it’s path, we could see it breaking the 1.1820 (R1) resistance line.
In today’s other economic highlights:
In the European session, we get UK’s inflation data for May and UK’s PPI growth rate for May. Also in the European session we get Eurozone’s industrial production growth rate for April. In the American session we get the US PPI growth rate for May and the EIA weekly crude oil inventories figure. The star of the day however remains the FOMC interest rate decision and the following press conference.
• Support: 1.1715(S1), 1.1640(S2), 1.1550(S3)
• Resistance: 1.1820(R1), 1.1925(R2), 1.2000(R3)
• Support: 110.45(S1), 109.75(S2), 108.95(S3)
• Resistance: 111.00(R1), 111.60(R2), 112.30(R3)