What should you wait today from the Fed?

[walid]

What should you wait today from the Fed?

• First, the market is widely priced in receiving new forward guidance from the Fed.
• If this guidance is strong enough to suggest close by hiking of the interest rate in US for the first time since 2006, The greenback can have leeway for rising.
• If the guidance is soft and can carry different meanings the greenback can be steady like what they have done when they have omitted "the patience stance" replacing it by shown cautiousness and care of the inflation downside risks!
• If there is no forward Guidance and the statement came with no new clues like April meeting, the greenback can be under pressure.
• The Fed has 2 important issues to direct it and to be mentioned in its assessment today
• The first is the low inflation level as US PCE which is the Fed's favorite gauge of inflation came previously to show lower than expected inflation pressure in April by rising by only 0.1% y/y which is the weakest since also October 2009, after increasing by 0.3% in March as it has done in February, after rising in January by only 0.2%, While the Fed's yearly inflation target is 2%.
• While April US CPI which came previously has shown falling by 0.2% y/y, after decreasing by 0.1% in March which is also the weakest since also October 2009 and the market will be waiting for May CPI tomorrow for new indication about the inflation in US.
• The second important issue is the US labor market, after May US non-farm payrolls has shown adding 280k of jobs, while the market was waiting for only 225k, after 223k in April following only 126k in March.
• If the Fed is to give higher appreciation of the current low inflation level, this can weigh down on the greenback but if the focus to be on the labor market continued progress, the greenback can take benefits.
• From my perspective, I see that they should pay attention for the inflation low level and signal that there should be evidence of inflation building up to the Fed's target over the medium with standard repeated phrase about the labor market improvement.
• As they should wait for economic growth rebound in the second quarter, after GDP annualized shrinking by 0.7% in the first quarter following growth by 2.2% in the last quarter of last year.
• The Fed is in need to choose the expressions to show that it is waiting anyway for rising of the economic activity can raise the inflation expectations up and give hope for reaching its yearly 2% goal.
• Otherwise there could be lower economic activity to weigh down further on the inflation and lead the Fed to hold the interest rate at the current low level since December 2008.
• While there is widely waiting for the first quarter of next year to see elimination of the oil prices slide impact, after the significant drop of the oil prices in the first quarter of this year and this is not only in US but also over the globe.
• The Fed can show worries about the Greek issue and its impact and that can have impact before the EU Fin Ministers meeting tomorrow by God's will.

Have a good day

Kind Regards
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
E-Mail: mail@fx-recommends.com
http://www.fx-recommends.com