Yesterday we had the keenly awaited FOMC releases from the U.S. Federal Reserve, which is usually expected to have a strong impact on the U.S. Dollar. The FOMC was expected to raise its rate of interest by 0.25%, and to signify there would probably be two further equivalent rate hikes over the remainder of 2018 – and it did so. The FOMC also adjusted its language to present a slightly more hawkish picture, and broadly sees the U.S. economy as fundamentally strong. The U.S. economy is certainly enjoying strong GDP and low unemployment, and the U.S. stock market is still bullish by all technical measurement. What happened in the Forex market after the release? After initially rising, the U.S. Dollar fell, and has been under some pressure today everywhere as bond markets remained unimpressed. It just goes to show that you cannot rely upon fundamental analysis to accurately predict short-term price movements in Forex. There was nothing substantially “dovish” in the FOMC release. That doesn’t mean that you can’t use fundamentals and market sentiment as elements within a trading strategy, it just means that they are no more foolproof than technical analysis.
Attention now turns towards the European Central Bank and the Bank of Japan, who will each be giving their monthly inputs over the coming hours. The European Central Bank will be closely watched today, because there is some expectation it may announce an end to its “quantitative easing” (QE) program at the end of 2018, which would effectively signal a tightening in monetary policy i.e. a reduction in the supply of Euros. This would logically be expected to raise the relative value of the Euro. This is an especially interesting prospect, because the Euro has been rising over the past few weeks and is slowly but surely establishing itself as the strongest currency after the U.S. Dollar. If the ECB really does start to end its QE program, we might see a strong Euro become the main driver within the Forex market.
The Bank of Japan is next up after the ECB, but they will not be as closely watched. The main item here will be the Bank’s reaction to the slowly souring economic environment in Japan, as they have no real scope for any further stimulus program. If they try something radically stimulant, which is very unlikely, we could see a much weaker Yen.