Today will be an important trading day for traders as it may be the last one before the summer doldrums providing bigger market moves.
The base case scenario is dovish: While the U.S. employment gains are solid, the Fed has not seen the hoped-for job gain of more than a million, which could have been a condition to begin scaling back monetary support. Instead, labor market reports for the months of April and May have been disappointing relative to previous forecasts, strengthening the Fed’s argument that the job market is still a long way off from the “substantial further progress”. The Fed could therefore wait for further improvements before starting the taper debate. In this case, the U.S. dollar could fall on the back of disappointment.
The hawkish surprise: In the unlikely case of the begin of the discussion to reduce asset purchases, the greenback will rise against other peers.
The focus will also be on the Fed’s dot-plot forecast. It is expected that the forecast will shift to an earlier rate hike expectation in 2023 from 2024 back in March. This would be dollar-positive.
Let’s take a brief look at the technical picture:
The pound dipped below 1.4070 but held firmly above 1.40. If the 1.40-support remains unbroken, we anticipate a rebound towards 1.4150. For significant price breakouts, we would need to see either a bullish break above 1.42 or a bearish break below 1.40. Above 1.42 we will shift the focus to a higher target at 1.4290, whereas below 1.40, next targets could be at 1.3920 and 1.38.
EUR/USD: Not much has changed in this pair. As long as the euro trades between 1.2230 and 1.2080 there is nothing new to report. A rise above 1.2250 could open the door to further gains towards 1.2350, whereas on the downside, a fall below 1.2080 could lead to further losses towards 1.20 and probably even 1.1940.
We wish everyone good trades today.
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