Fed Looking At Growth Over Inflation

Daily Forex Fundamentals | Written by AC-Markets | Jul 17 08 08:29 GMT |

Market Brief

Usd has been able to hold gain in the Asian session as risk appetite slowly crept back into the markets. EurUsd was range bound between 1.5801 - 1.5868 while UsdJpy bounced around the 104.70 - 105.30 levels. Jpy fueled carry trades saw renewed buying with AudJpy and EurJpy trending upward to 102.76 and 166.73. EM currencies also got a boost with UsdMxn and EurPln sliding to 10.2200 and 3.2083. The Usd was help as oil prices dropped sharply as EIA data showed an unexpected rise in inventories.

The Fed minutes released yesterday were perhaps slightly more hawkish then the market had anticipated. While member were clear apprehensive with placing inflation worries over growth concerns the minutes stated 'the next change in the stance of policy could well be an increase in the funds rate'. Notes that given the rapid evolution of event these minutes are old news and therefore the weight we attached should be limited. Especially considering at the time there was a general feeling that the US was stabilizing (which we know no is not the cases). With yesterday sharp increase in Junes headline inflation (5.0% vs. 4.5% exp) the Fed will have to stay diligent but given the downside risk to growth it would be irresponsible for the Fed to tighten. We expected the pause in Usd volatility will be short lived as uncertainty around domestic economic conditions, inflation and unsettled GSEs position are still very much outstanding.

With no major data to be released in the UK, Eurozone today movement will be purely based on sentiment and positioning. A good way to guage what the market is thing. In addition keep an eye on other assets classes such as equity market and energy prices for FX directional support.

ACM FOREX