Has Carney inspired the FOMC

The FX markets are in a holding pattern ahead of the FOMC policy meeting this evening and the release of UK MPC minutes from the June 5^th meeting. Yesterday inflation data showed stark contrasts across the pond, with the UK CPI release coming in at its lowest level since October 2009 and falling 0.3% to 1.5% year on year. US inflation data released some four hours later showed an increase of 0.4%, taking the yearly number to 2.1% as US 10-year yields rallied to a high of 2.79% although this level hasn’t been sustained overnight, falling back to 2.65%.

The markets will be looking for Janet Yellen and the FOMC to add a hawkish tone on the one-year anniversary of the Bernanke ‘taper tantrum’ when markets were unanimous in their thinking of a dovish tone only for the then Fed Chairman to stick with the tapering script. The risks are that we see similar comments to that of BoE Governor Mark Carney at last week’s Mansion House speech where the market needs to bring forward their thinking of the first rate hike expectations. The median on the ‘dot plot’ gap has closed over the past month, supported by stronger data from the US in the form of rising inflation and strong jobs data which are central to the Federal Reserve’s dual mandate policy.

Keep a close eye on events in Iraq as there are reports on Twitter this morning that the main oil refinery in Iraq is under fire as the market prices a ‘no oil’ scenario in Iraq at crude $200 per barrel.

EUR/USD

Supports 1.3500-1.3480-1.3410 | Resistance 1.3580-1.3605-1.3630

USD/JPY

Supports 102.00-101.60-100.75 | Resistance 102.50-102.85-103.05

GBP/USD

Supports 1.6940-1.6900-1.6885 | Resistance 1.7010-1.7045-1.7100