24.07.201709:05 Forex Analysis & Reviews: The market has no ideas before the Fed meeting

EUR/USD, GBP/USD

Last Friday, in the absence of any investment ideas, the euro and the pound grew a bit, expressing the calmness of the markets. However, the net borrowings of the UK public sector for June showed growth. First of all, the May figure was revised from 6.0 billion pounds to 6.4 billion. Meanwhile, the past month's volume exceeded the forecast to 6.3 billion against 4.3 billion. The stock market, despite good quarterly reports of corporations, had a lateral trend in the last seven sessions. Meanwhile, yields on US government bonds are declining, gold is growing, and copper is slowly dragging its way up. That means that there are no risky correlations but rather prices are working out questionable ideas about the slowing pace of tightening by the Fed. The weighted average expectation of the rate in December is expected to be at 1.225% against 1.26% at the beginning of the month. The probability of a December increase is 52%. It turns out that this idea is also weak. We would have to wait for the decision of the Fed on Wednesday. Until then, important economic indicators are not coming out.

Today's balance of macroeconomic statistics are in favor of the dollar. The euro zone's business activity index (services PMI) in the preliminary estimate for July is expected to increase from 55.4 to 55.5. The production PMI is expected to decrease from 57.4 to 57.3. In the US, the manufacturing PMI is projected to increase to 54.3 from 54.2. Sales of homes in the US secondary real estate market for June may show a decrease from 5.62 million to 5.59 million. However, the forecast for sales of new houses on Wednesday is 615,000 against 610,000 in May which is close to the post-crisis maximum which was at 654,000 for July last year.

On the technical side, the euro can trade in the range of 1.1650-1.1730, the upward pressure may be forecasted by the IMF's eurozone GDP forecast for the current year of 1.9% from 1.7%. However, we are still waiting for the closing of positions before the Fed meeting which may lead to a decrease to 1.1570. According to the British pound's current situation, the speculative growth is even stronger that in the euro. Household activity in July fell from 43.7 to 41.8 and the IMF lowered the forecast for the growth of the UK economy from 1.7% to 2.0%. However in price, these news are not yet displayed. There is a risky gamble of speculators up to the Fed meeting.

USD/JPY

The Japanese yen still fell in the price range of 110.45-111.00 under the pressure of the general weakening of the dollar. Although, of course, for the Bank of Japan, this range does not cause any concern. Today, the index of business activity in the manufacturing sector of Japan for the month of July showed a decrease from 52.4 to 52.2, the lowest in the last 8 months. The stock index of the Nikkei 225 is down by 0.86% with the growth of the Shanghai Composite by 0.18%. However, the dynamics in Asian markets are mixed. The Chinese indices are growing on optimistic forecasts from the IMF. Economic growth for 2017 was increased from 6.6% to 6.7%. For the next year, it was increased from 6.2% to 6.4%.

If we take the view of investors that the Fed is not going to raise rates even in December, then the stock index growth will continue and we expect to see the yen at 112.60 and further at 114.40. Technically, the range of 110.45-111.00 looks like a strong support.