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Federal Reserve Leaves Interest Rates Unchanged, Maintains Monthly Asset Purchases

Real Time News
  • Fed's Powell: - We are not looking at raising rates, but instead asset purchases - Ideally you would not be raising rates before tapering
  • @CVecchioFX @RiskReversal @GuyAdami Gold is headed back to the bar for another bender #LowerForLonger
  • Fed's Powell: - Move in yields not pinned on one single factor - Technical factors, movements in real yields shifting bond market
  • Fed's Powell: - In the near-term, risks to inflation are tilted to the upside - If inflation continues to rise above the Committee's goal, Fed will use its tools to guide inflation lower
  • $USD bearish break, now at LOD next support 92.19-92.26
  • Gold and the US Dollar whipsawing in wake of the Fed statement and press conference hosted by Chair Powell. Statement said the economy has made progress toward its goals, but Powell just expounded on this by saying "we are still a ways away from *substantial* progress on jobs."
  • Fed's Powell: - We are not near a discussion on raising interest rates - Economic recovery remains extremely uneven
  • So, either the Fed announces Taper soon and markets will evaluate that through the risk lens or they will have to push it back because they are troubled by economic issues such as the covid risk they highlighted. Either way, serious dancing to keep risk appetite steady
  • Fed's Powell: - COVID waves have less and less of an economic impact as time goes on - We will monitor Delta variant closely
  • Yesterday on The Macro Setup, @RiskReversal @GuyAdami and I discussed how it was difficult to trust the USD ($DXY) rally ahead of the Fed. Today's price action is validating that notion. Take a watch/listen:
EUR/USD: European April Inflation to Spark QE Speculation?

EUR/USD: European April Inflation to Spark QE Speculation?

Gregory Marks,
EUR/USD ECB April Inflation

Talking Points:

-EUR/USD at risk if ECB ‘QE’ speculation picks up on weak inflation data.

-European Central Bank members are upbeat, confident in better April data, but why?

-Draghi, Constancio ‘surprised’ by poor March inflation data.

-ECB looking at QE options, but catalyst for action/rhetoric needed.

At the April European Central Bank meeting, EUR/USD and EUR crosses faced weakness on the back of comments from Mr. Draghi that a European style ‘QE’ program was being discussed by the council. Regardless, it was made clear that a move to undertake an easing program would only be in the context of absolute necessity. What constitutes such absolute necessity is likely to be a widely debated topic over the next 8 weeks, especially if April and May inflation come in below targets and expectations.

ECB officials have come out and stated that they were ‘surprised’ by March inflation data. In the context of five year seasonality studies, the council may be once against surprised in the second quarter of 2014. While ICE Brent crude is usually supported in March, the commodity is already down 3% year-to-date. If it continues to follow April/May trends, lower energy prices would contribute further to downside price levels in the Eurozone. Although these correlation studies are simple and straightforward metrics, expecting higher prices in April (as the ECB does) would be going directly against post-crisis averages.

Five Year Avg. Study: CPI to Disappoint Draghi in April?

EUR/USD Oil Comparison

Of course it would be irresponsible to discount risks in regards to higher natural gas prices on any further escalation with Ukraine and Russia. Nevertheless, as we approach summer the warmer weather across Europe will lessen any impact of higher natural gas prices.

EUR/USD News: Detailed Seasonality Snapshot

Euro Dollar Rate Chart

Gregory Marks, DailyFX Research Team

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How does a Currency War affect your FX trading?

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