FX Market to Take Cues from FOMC, Bernanke Press Conference

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Forex_FX_Market_to_Take_Cues_from_FOMC_Bernanke_Press_Conference_body_ScreenShot069.png, FX Market to Take Cues from FOMC, Bernanke Press Conference

Talking Points

  • U.S. Dollar: All Eyes on FOMC, Bernanke Press Conference
  • Euro: EU Warns of Prolonged Recession, Seeks Direct Recapitalization
  • British Pound: BoE Votes 6-3, Sees Sustainable Recovery in U.K.

U.S. Dollar: All Eyes on FOMC, Bernanke Press Conference

The greenback pared the rebound from earlier this week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker:Ticker::USDOLLAR) tagging a low of 10,514, but we should see the reserve currency consolidate ahead of the Federal Open Market Committee (FOMC) interest rate decision amid growing speculation that the central bank will look to taper its asset-purchase program in the coming months.

Beyond the updated forecast coming out of the Fed, the press conference with Chairman Ben Bernanke may reveal a more detailed exit strategy as the central bank anticipates a stronger recovery in the second-half of the year, and we may see the committee slowly moving away from its easing cycle as the economy gets on a more sustainable path.

In turn, a more neutral to hawkish tone from the central bank should prompt a rally in the USD, and the bullish sentiment surrounding the greenback should gather pace throughout the remainder of the year as the fundamental outlook improves.

Euro: EU Warns of Prolonged Recession, Seeks Direct Recapitalization

Although the EURUSD is holding within the previous day’s range, negative headlines coming out of the euro-area may continue to dampen the appeal of the single currency as European policy makers retain a reactionary approach in addressing the risks surrounding the region.

As the EU Summit comes into focus, European Union Economic and Monetary Affairs Commissioner Olli Rehn warned that the monetary union is in ‘no ordinary cyclical downswing,’ and said that the group should ‘agree on the principles and rules of a direct-recapitalization instrument for the ESM’ as the governments operating under the fixed-exchange rate system become increasingly reliant on external support.

Indeed, it seems as though the EU will continue to scale back its push for austerity as the region remains mired in recession, and we may see the European Central Bank (ECB) come under increased pressure to further embark on its easing cycle as the region struggles to return to growth.

Although a more hawkish Fed should spur a near-term reversal in the EURUSD, the weakening outlook for the euro-area may ultimately threaten the upward trending channel dating back to the end of March, and the single-currency remains poised to face additional headwinds in the second-half of the year as the region faces record-high unemployment along with the slowdown in private sector consumption.

British Pound: BoE Votes 6-3, Sees Sustainable Recovery in U.K.

Although the British Pound struggled to hold its ground following the Bank of England (BoE) Minutes, the policy statement continues to dampen expectations for additional monetary support as the central sees a slow but sustainable recovery in the U.K.

Indeed, the Monetary Policy Committee voted 6-3 once again to retain its current policy in June, and it seems as though the majority is slowly moving away from the easing cycle as the region is expected to face above-target inflation over the policy horizon.

As the Funding for Lending Scheme continues to feed into the real economy, we should see the BoE keep the Asset Purchase Facility capped at GBP 375B, and a growing number of central bank officials may adopt a more hawkish tone in the second-half of the year as the outlook for growth and inflation improves. In turn, we should see the BoE continue to operate under its inflation-targeting framework, and the GBPUSD may continue to retrace the decline from earlier this year amid the shift in the policy outlook.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:30

10:30

DOE U.S. Crude Oil Inventories (JUN 14)

2523K

USD

14:30

10:30

DOE U.S. Distillate Inventory (JUN 14)

-1163K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (JUN 14)

2748K

CAD

16:40

12:40

BoC Governor Stephen Poloz Speaks on Canadian Economy

USD

18:00

14:00

Federal Open Market Committee Interest Rate Decision

0.25%

0.25%

USD

18:00

14:00

Fed Publishes Summary of Economic Projections

USD

18:30

14:30

Fed Chairman Ben Bernanke Holds Press Conference

NZD

22:45

18:45

Gross Domestic Product (QoQ) (1Q)

0.5%

1.5%

NZD

22:45

18:45

Gross Domestic Product (YoY) (1Q)

2.4%

3.0%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link.

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