Financial Markets Stabilise As FOMC Meeting Begins

Forex News and Events

EM currencies rise amid improving risk sentiment

In spite of a sharp appreciation at the beginning of June, the Brazilian real declined for a fourth straight session against the US dollar as investors switched to risk-off mode ahead of this week’s FOMC meeting and next week’s Brexit vote. In fact over the last few months, the development of Brazil’s political situation has only had a small impact on USD/BRL as investors have little visibility over the political outcome and more specifically whether the new government will in fact be able to pass the necessary measures aimed at putting the country back on a growth path. In the meantime, investors focus on international developments and put the Brazilian situation on the backburner.

Yesterday, the real traded mostly sideways while the equity sell-off was in full swing. Today is a different story, equities across the globe rally amid improving risk sentiment. The real will most likely follow the lead from Asian and Eastern Europe currencies and gain momentum against the greenback. Over the medium-term, investors will likely focus again on the Brazil political situation but only once they get better clarity on the Brexit and US rate hike stories.

FOMC rate decision

Volatility promises to be weak today ahead of the FOMC meeting. Even though a surprise is still possible, this meeting is likely to be a non-event as the Fed should keep rates unchanged at 0.25% - 0.50%. In any case, financial markets have completely ruled out a raise. Even a July raise seems very unlikely at the moment. We will closely follow the press conference and the following statements as we expect that the “dots” projections for next year should diminish. The growth forecast should also be lowered due to general global and domestic conditions. On top of that given the recent soft data, including weak NFPs and sluggish demand, we continue to believe that no rate hike will happen in 2016.

Yet, policymakers will never admit that a 2016 rate hike is off the table and will continue hinting at a closer normalization of the interest rates. As a result we expect the dollar to further weaken over the medium term against major currencies as long as the first rate hike since last December 2015 is postponed. We target the EUR/USD to reach 1.1500 over the medium-term.

Crude Oil - Bearish Bias

The Risk Today

EUR/USD's very short-term move is bearish. Hourly resistance can be found at 1.1303 (13/06/2016 high). The road is still wide-open toward hourly support at 1.1137 (03/06/2016 low). Expected to further weaken. In the longer term, the technical structure favours a very long-term bearish bias as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBP/USD is trading lower. Resistance is given at 1.4328 (13/06/2016 high) and stronger one is located at 1.4660 (07/06/2016 high). The pair is heading towards support at 1.4006 (06/04/2016 low). Expected to confirm deeper selling pressures. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY's selling pressures continue. Hourly support at 106.25 (04/05/2016 low) has been broken while hourly resistance is given at 107.89 (07/06/2016 high). The medium term momentum is clearly oriented downwards. Expected to further weaken. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF is consolidating below hourly resistance at 0.9679 (13/06/2016 high). Support can be found at 0.9578 (09/06/2016 low). Expected to show a continued bearish move. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias since last December.