FOMC remains on hold, USD remains steady

The FED remained on hold yesterday, as was widely expected, keeping interest rates unchanged at +2.00%.

The accompanying statement had little changes with the most notable being on household spending, economic activity, inflation and unemployment.

Overall, the tone was slightly more hawkish than in the previous accompanying statement, implying a continuation of the further 2 rate hike path in 2018.

The markets remained unimpressed, as the result of the meeting was expected and the USD remained on a steady course against its major counterparts.

EUR/USD continued its sideways movement yesterday aiming for the 1.1640 (S1) support line.

We maintain our sideways bias for today but the market could start positioning itself for tomorrows US employment report.

Should the bulls take over the market we could see the pair breaking the 1.1745 (R1) resistance line.

On the other hand should the bears take over we could see the pair breaking the 1.1640 (S1) support line and aim for the 1.1580 (S2) support barrier.

BoE Interest Rate Decision

BoE is to announce its interest rate decision today (11:00, GMT), and is expected to hike rates by 25 basis points reaching +0.75%.

Currently GBP OIS imply a probability for the bank to hike rates of 88.14%.

On the financial side, the current inflation rate and the low unemployment favour the case of a possible rate hike.

On the other hand, a weak GDP growth rate and Brexit uncertainty could be advising caution for the BoE.

A number of analysts have suggested that a dovish rate hike could be an option for the BoE, where the bank may hike rates as expected, issue though a rather dovish accompanying statement.

The vote count could also influence the market, with an absolute 9-0 being the more hawkish outcome, while other analysts see the case for a more dovish 7-2.

Please be advised that BoE will also publish its inflation report with focus being on the end of the horizon (2 or 3 years ahead). Should BoE not hike rates as expected, the pound could weaken substantially.

Cable, continued its sideways movement yesterday between the 1.3160 (R1) resistance line and the 1.3090 (S1) support line.

Should there be a more dovish hike, cable could weaken and vice versa. Other than that, we maintain our sideways bias.

Should the pair come under selling interest, we could see it breaking the 1.3090 (S1) support line, aiming for the 1.3035 (S2) support barrier.

Should on the other hand, the market favor GBP long positions, we could see the pair aiming if not breaking the 1.3160 (R1) resistance line.

In today’s other economic highlights:

In the European session we get UK’s Construction PMI for July and at the same time as the BoE, the Czech National Bank will release its own interest rate decision.

Analysts, see the case for the bank to hike rates, raising them from current +1.00% to +1.25%.

Financial indicators such as inflation, unemployment and GDP growth rate seem to allow such a rate hike, while on the other hand currently CZK OIS imply a probability for the bank to remain on hold of 89.54%.

Also, please note that BoE governor Mark Carney is speaking today.

A oil prices dropped yesterday after the release of the EIA weekly crude oil inventories injection of +3.8 million barrels, which more or less supported the release of the API weekly crude oil injection of +5.59 million barrels, indicating an excess in supply in the oil market.