FED Chair Jerome Powell. Image source: Federalreserve, flickr.com
The highly anticipated July meeting of the Federal Open Market Committee of the Federal Reserve did not cause any major surprises.
The decisions of the Committee matched our initial expectations from the beginning of the week, in that the Federal Funds Rate was left unchanged at the near negative 0.25 per cent, while the Bank reaffirmed its readiness to continue its large-scale Open Market purchases.
"To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations."
Muted inflationary pressures continue to exacerbate the economic toll on the tentative recovery process, while fears over a second coronavirus wave underscore the likelihood of another major downturn by the end of the year.
US Inflation Rate. Image source: TradingEconomics.com
The Monetary Policy Statement revealed that the FOMC had maintained almost the same stance as the one they adopted in June. From the undertones of the statement, it becomes apparent that the Committee is unlikely to lift its near-negative interest rate anytime soon.
Thus, the accommodative monetary policy stance is expected to remain in place at least by the end of the year, which means that the yields of US Government Treasury securities are probably going to stay low in the foreseeable future.
Meanwhile, the dollar temporarily stopped its depreciation following the publication of FOMC's decision yesterday. The EURUSD behaved exactly as we projected in our analysis of the pair, which was released before the meeting was held.
As can be seen on the 15-minute chart below, the heightened volatility around the time of publication caused the underlying price action to surge to the historic resistance level at 1.18000 temporarily. This upsurge is demonstrative of adverse trading activity, which is inlined with our expectations concerning the impact of mass-market psychology and the impact of market whales' speculative trading.
Once the initial uncertainty started to diminish, however, the pair reversed its course and started depreciating. The EURUSD is currently headed towards the minor support level at 1.17100, though it is too early to tell if more significant bearish corrections can be expected to unfold shortly.
EURUSD 15M Price Chart. Image source: Trendsharks ©, created with TradingView.com
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