Weekly Outlook | Fed Abandoned Low-Interest Rate Regime

During a busy Central Bank week, the Federal Reserve Bank from the United States pointed out that they will not go back to low interest rates. They removed the wordings from their statement and also pointed out that rates will remain elevated as their primary concern is now to bring inflation back down to moderate levels.

Markets celebrated the news with a stronger dollar, while initially equity markets started to weaken slightly. Yet, the news had not been totally unexpected and hence stock markets resumed their positive mood ending the week in even slight positive territory.

This week will mainly focus on consumer price reports, whereas also the primary gauge of inflation in the US will also be released. The core PCE price index is expected to rise slightly from 0.2% to 0.3% on a monthly basis.

On another note, renewed breaches of the truce between the United States and Iran have been reported. Seemingly the Israeli army continued to attack targets in Lebanon, pushing the signing of a peace deal on the edge. Markets might continue to react this week with oil prices potentially rising again if the Strait of Hormuz remains closed, while negotiations in Geneva continue.

Important events this week:

– AU consumer price index– the renewed strength of the dollar caused the AUD to weaken pushing the AUDUSD pair lower. Currently, the market still remains slightly above recent technical support levels. A break below, however, might unleash fresh selling pressure. 

AUDUSD daily chart

The AUDUSD pair is currently trading just above the psychological zone of 0.7000. On a positive note, the stronger dollar was mostly able to push the EUR and GBP lower. The AUD, on the other and, was able to defend itself, not losing much steam. The generally positive sentiment in markets seems to play a key role here, as also equities did not weaken overall. If the positive market sentiment returns, the AUDUSD might be able to rise towards the key resistance at 0.7150. That is where the 50- moving average will then kick in. The consumer price index will be released on Wednesday, 24^th of June at 03:30 CET.

– US core pce price index– the US personal expenditures is the main gauge of inflation used by the Federal Reserve. As the US Central Bank just pointed out that they will leave the low- interest regime behind, traders might focus on the price index this week. With the recent strength of the dollar, we will now focus on the Dollar index (USDX). The index offers insights into the momentum of the US- dollar in general against a basket of other currencies. 

USDX weekly chart

A rise if the USDX, will generally show strength of the Greenback. The index is currently nearing the upper trendline and a break higher might be on the cards. Furthermore, it is now trading back above the psychological 100- level. More upside might hence be on the cards. To the downside the market looks well support. The 50- moving average zone at around 88.50 is still quite far away as the positive momentum has been re-ignited. The fundamental news from the Federal Reserve last week should now be in favor of a rising dollar. The core pce price index will be released on Thursday, 25^th of June.