Global macro overview for 27/07/2017

Global macro overview for 27/07/2017:

The US Federal Reserve Bank (FED) decided to leave the interest rate unchanged at the level of 1.25%. The changes in the statement have been small and consistent with comments by FED members over the weeks since the June FOMC meeting. the statement released after the rate decision, the key phrase was: "The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided the economy evolves broadly as expected". The market participants believe that "relatively soon" means, that an announcement will come in September. Inflation, meanwhile, has recently declined and is running below 2%, whereas in June it was running somewhat below 2%. At the same time, it was reaffirmed that the inflation target in the broader horizon was not threatened. That's a very subtle change in rhetoric, but not one which will scare US Dollar bears. The FED is also more optimistic about the labor market situation, assessing employment growth as "solid".

After the FOMC statement, the market expectations regarding another rate hike in 2017 has dipped below 40%. The FOMC message went without surprises but did not stop the global investors from another round of US Dollar sell-off. This suggests that the market reaction had more to do with back to building a position for which the FOMC meeting was just an obstacle. Investors have been skeptical of the Dollar for a week, seeing fewer and fewer arguments (inflation weakness, fiscal policy failure) for the continuation of interest rate hikes in the Fed set the pace. It will be difficult to persuade the global investors to change its mind until we see a clear reversal on macro data, primarily on inflation.

Let's now take a look at the US Dollar Index technical picture at the H4 timeframe. After the FOMC decision, the index fell to the level of 93.15 which is just above the technical support at the level of 93.03. The market conditions remain oversold, but the momentum still can not break out above the fifty level.

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