The USD is crashing, with GBP/USD at new cycle highs and EUR/USD getting closer to the double top (update: broken in the middle of the European session). Other currencies are on the rise as well.
Why? The Fed left policy unchanged and also provided little evidence of any rush to raise the rates. Here are the key 4 takeaways:
- Loweר dot plot: The pace of rate hikes is expected to be more moderate. While a rate hike is on the cards this year, it seems that the hawks are moving down towards the doves, for 2015, 2016 and 2017.
- No dissents: We could perhaps see a hawk in the meeting minutes, but within the current voting members, nobody wanted a rate hike now.
- Wage growth remains subdued: Yellen only said that there are tentative signs of wage growth, but still said they are subdued. The 2.3% wage growth in the NFP didn’t convince the Fed, nor the Atlanta Fed’s 3.3% wage growth level.
- Fed needs to be confident: More evidence is still needed for the Fed – that means that the recent improvement in the economy does not convince the Fed. What will convince the Fed? Basically, it doesn’t want to choke the recovery and then have to backtrack. It adopts the “better safe than sorry” approach, or “if in doubt stay out”.
So when will the Fed raise the rates? September is still on the cards, but the market is beginning to understand that the pace will be extremely moderate.
Here is how it looks on the EUR/USD chart. Note that the pair made a strong move higher, and reached a peak of 1.1356. That’s 17 pips shy of the 1.1373 resistance line, which is also a double top.
Update: EUR/USD respects double top in the morning after
Well, not any more:
Update: EUR/USD breaks double top and 1.14 on second wave of USD selling
Here is a quick video wrap up
Will it break this level in the sessions ahead?
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