Will disinflation be an issue for the FOMC

We saw some big moves off the recent lows for the risk pairs, with EUR/USD bouncing 1.1220 to highs of 1.1420. There’s a similar story for GBP/USD, from lows of 1.5058 to highs of 1.5220. The moves look to be positioning on the FOMC tonight, with the global disinflation pressures likely to be the hot topic in the wording.

What most are expecting to happen is a dovish tilt, with comments about the risks on the downside to near-term inflation. The Hawks will be wanting to hear reiteration of the need to look through the current disinflationary impulse. These will be the key drivers of the markets tonight, which will give clues to where the FED may be looking to raise rates, as so far most suggestions of as early as June have been pushed back to September/October time.

Overnight the Aussie made a break above the 0.80 handle after reacting best to the trimmed mean CPI data that beat expectations, but  the markets are still cautious as the headline CPI falls to 0.2% from last 0.5%. Currently AUD/USD is trading below 0.8000.

EUR/USD started the day off weak, after big gains yesterday with possible profit taking as we gear up for the FOMC statement and rate decision. The euro also got a lot of cross-buying action yesterday, mainly on the CHF side as the SNB’s Danthine maintained his intention to intervene in the FX markets, as the EUR/CHF level is not at the desired level. This saw the EUR/CHF rally more than 200 points, then back to where it started after profit taking takes over and the fact no intervention happened. This is still a very volatile time for the CHF pairs. Currently EUR/USD is trading above 1.1300 and EUR/CHF below 1.0300.

GBP/USD again matched the losses of the Euro early on this morning, in anticipation of the FOMC data. Yesterday’s gains were very much against the grain of the trend, with the weak GDP data possibly causing more issues for the BoE in its race to raise rates now with falling inflation and GDP. Currently GBP/USD is trading below the 1.5200 level.

EUR/USD
Supports  1.1250-1.1140-1.1055   | Resistance 1.1450-1.1540-1.1650

USD/JPY
Supports  1.1720-1.1660-1.1590  | Resistance  1.1850-1.1925-1.1980

GBP/USD
Supports  1.5090-1.4990-1.4930  | Resistance  1.5255-1.5320-1.5420