June-Hike Again On the Table

Ever since the US Federal Reserve announced once in a decade interest-rate hike in December, market players kept looking for hints relating to some more lift-offs as FOUR such announcements were initially expected to happen during 2016. However, financial market turbulence in January, followed by weaker than expected US details in February and March raised bars for the central banker to go ahead as planned, which ultimately triggered the disappointed decline of the US Dollar Index (I.USDX). Though, nearby US economics remained upbeat and helped some of the FOMC members to favor the June rate-hike during their latest public appearances.

The Ups And Downs At Fed

While sustained labor market improvement and growing economy helped the Federal Reserve to announce its December rate-change, the year 2016 didn’t start as per plan and the gloomy macro-economic environment, mainly due to Chinese pessimism, held the Fed back from announcing any rate alterations during its January month monetary policy meeting. However, as the meeting wasn’t accompanied by summary of economic projections and the Fed Chair’s press conference, the move was already less likely at that time and market players shifted their attention to March meeting which encompassed all the important details to be released.

During its March month meeting, the FOMC altogether turned dovish and said that it is cutting down the FOUR rate hikes a year plan to TWO. The statement gave USD Bears more powers, which together with an uptick in Unemployment and some downbeat numbers, like GDP and Inflation, kept dragging the greenback towards south then after.

Present State Of Speculations

Looking at the recent upticks in Manufacturing and Factory Order details, coupled with improvement in Retail Sales and CPI, chances are higher that the US economy might register solid growth numbers than the initially estimated 0.5%. Hence, welcome flow of latest economics, together with the presence of Janet Yellen’s press conference and economic forecasts, rejuvenated expectations that the Federal Reserve might take a chance to announce much awaited interest-rate increase decision during its June 14-15 meeting.

Also, some of the influential Fed policymakers, like John Williams, President of the Fed’s San Francisco, Atlanta Fed president Dennis Lockhart and Robert Kaplan, President of the Fed’s Dallas regional bank, have also been loud mouthed during their public appearances and considered June rate-hike as “Live” possibility. However, the Bloomberg’s global rate forecast stats (as mentioned below) signals only 18% probability that such even can take place in the coming month’s FOMC.

The Minutes

Adding to present optimism about June rate-change announcement, the minutes of April month Fed meeting furnished the dovish tone of the statement, which initially spread threats from global economic slowdown, and said:

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the committee’s 2% objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June”

The term “likely would be appropriate” spurred expectations that the Fed is seriously looking for the rate-hike during its June meeting, if the upcoming data-points maintain their recent strength.

Bottom-Line

Considering the slew of welcome numbers form US, together with upbeat minutes, upcoming GDP and job numbers, scheduled during later-half of the present month and the early next month, are likely to become catalyst for the speculations governing June rate-hike decision. Given these details remain positive, the Federal Reserve might announce one of the two planned alterations in its benchmark interest-rate, Fed Rate, which in-turn can propel the US Dollar to pare some of its losses since the start of the year 2016. However, weaker details and inaction from the Fed could become detrimental for the greenback gauge and can force it to dip below the sixteen month lows marked recently.

Technical Opinion

On the technical side, the 95.55-60 trend-line resistance might confine near-term up-moves of the US Dollar Index, clearing which 96.40 and the 200-day SMA level around 96.70 are likely resistances that it could target. Given the sustained up-move beyond 96.70, the 61.8% Fibo level of its December 2015 – May 2016 downside, near 97.25, might act as intermediate rest for the index run-up to March highs, near 98.55-60 area. Meanwhile, 94.70 and the 23.6% Fibo, at 93.90, are likely immediate supports for the gauge to witness during pullback, breaking which 93.70 and the 93.10 could hold its further downside towards dropping below present month lows of 91.90

This is a guest post written by Anil Panchal, an analyst at Admiral Markets