WEDNESDAY IS FED DAY
All eyes are on monetary policy Wednesday, as the Federal Reserve gets set to deliver its first interest rate decision since July. The official statement and accompanying press release could provide vital information about the Fed’s plan to begin normalizing its inflated balance sheet.
On the data docket, Germany will release the monthly producer price index (PPI) at 06:00 GMT. Producer inflation is expected to rise 2.5% annually in August, up from 2.3% the previous month.
A British report on retail sales will also make headlines Wednesday, providing investors with the latest reading on consumer spending. Receipts at retail stores are forecast to rise 0.2% in August, after gaining 0.3% the month before. That translates into a year-over-year gain of 1.1%. Excluding fuel, sales are expected to climb 0.2% on month and 1.4% annually.
Shifting gears to North America, the National Association of Realtors will release its closely watched existing home sales report. The sale of previously-owned homes is forecast to edge up 0.3% in August after tumbling 1.3% the month before.
The Federal Open Market Committee (FOMC) will wrap up its meeting at 18:00 GMT, with a press conference scheduled 30 minutes later. Although no change to the benchmark interest rate is expected, policymakers could announce plans for unwinding their $4.5 trillion balance sheet.
The official statement will also be accompanied by quarterly projections covering GDP, unemployment and inflation.
Earlier in the day, the Japanese government reported a smaller than expected drop in the August trade surplus. The merchandise trade surplus came in at ¥113.6 billion yen, down from ¥418.8 billion the month before. Exports surged 18.1% year-over-year, while imports expanded 15.2%.
The euro regained its footing on Tuesday, and was last seen trading above 1.2000 US. The EUR/USD pulled ahead as the dollar weakened in anticipation of the Federal Reserve’s policy decision. The common currency’s technical picture remains favourable, with prices eyeing resistance at the multi-year high of 1.2101. On the flipside, immediate support extends toward 1.1910.
Pound sterling caught a major tailwind last week after the Bank of England (BOE) sent its strongest signal yet that interest rates are headed higher. Cable has since backtracked from its highs near 1.3600, but remains well supported in a bullish range north of 1.3500. The GBP/USD is consolidating at the 23.6% Fibonacci retracement of its latest bullish run. The pair faces immediate support at the 38.2% Fibonacci retracement of 1.3440.
Despite recent volatility, the dollar continues to trade at two-month highs against the yen. The USD/JPY has consolidated in the mid-111.00 range, as the return of risk sentiment undermined the yen. The pair remains well supported on the short-term charts, with immediate resistance located at 111.76.