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Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.

Good day traders!

EURCHF is at new highs after recent nice triangle consolidation that completed wave 4 earlier this month. We can see nice move up now which can be wave 5 headed to 1.1700 about we already discussed in August.

EURCHF, Daily

The focus of the market today will be the FOMC statement on monetary policy that will be published at 18:00 GMT. Investors do not expect a rate hike today, but the US central bank may decide to start reducing its balance sheet from the current 4.5 trillion dollars. Details about the timing and the scale of balance sheet cuts may influence investor sentiment. Traders will also be monitoring the FOMC economic projections that will also be released at 18:00 GMT. A spike in volatility is predicted after the Fed's chairwoman Janet Yellen's speech during which she may outline the Fed's opinion about the recent acceleration of inflation and the labor market data missing forecasts. In case of hawkish rhetoric, we may see a massive selloff of the EUR/USD. Some pressure on the greenback came from the existing home sales report, according to which the indicator has fallen to 5.35 million in August against the 5.46 million forecasted.

The USD/JPY retreated downwards amid profit taking ahead of the FOMC statement and from the Japanese trade surplus report that showed 0.37 trillion yen in August versus the 0.41 trillion yen expected. The demand for the yen as a defensive asset may rise in case of geopolitical tensions grow or if the stock markets take a dip. Traders are also waiting for the Monetary policy statement from the Bank of Japan at 03:00 GMT tomorrow.

Another important event investors should be on the lookout for this evening is the GDP report in New Zealand that will be published at 22:45 and may partially offset the influence of the FOMC statement on the NZD/USD.

EUR/USD

The EUR/USD quotes are consolidating near the 1.2000 level and keep moving within the local rising channel. After the end of the current sideways movement there is a high possibility of sharp moves. Breaking through the lower limit of the channel may result in drops to 1.1925 and 1.1825. On the other hand, the price may resume upward dynamics with the first goal at 1.2070.

USD/JPY

The USD/JPY was not able to gain a foothold above the 111.70 mark and rolled back. We do not exclude the growth resuming with potential upsides to 113.00 and 114.70. Breaking through the closest support at 111.00 will likely force the bears to pull the pair down with possible objectives at 110.30 and 109.60. Volatility is likely to rise soon.

NZD/USD

The NZD/USD is testing the local resistance at 0.7375 and its overcoming will help the bulls to push the quotes up to 0.7400 and the upper boundary of the local ascending channel. The RSI on the 15-minute chart approached the overbought zone, indicating a possible downward correction in the near future. The immediate goals in case of a fall may be located in the 0.7250-0.7300 range.

Existing home sales continued to slide in August, falling 1.7% to 5.35 million (annualized), marking the fourth decline in five months. The headline print disappointed market expectations which called for a moderate uptick of 0.2% on the month.

The decline was concentrated in the single-family segment where transactions fell by 2.1% to 4.74 million, from 4.84 million in the month prior. Meanwhile, sales in the smaller condo/co-op segment managed to edge higher, rising 1.7% to 610 thousand.

Regional performances were mixed, as resale activity pulled back sharply in the South (-5.7%) given the likely impact from Hurricane Harvey in southeast Texas and West (-4.8%), while improving in the Midwest (+2.4%) and soaring in Northeast (+10.8%).

The inventory of homes available for sale fell by a seasonally unadjusted 2.1% on the month and remained low at 1.88 million – down 6.5% from year-ago levels. At the current sales pace, inventory accounts for just 4.2 months' worth of supply compared to 4.5 a year ago – well below the six months' of sales considered a balanced market.

Despite the low inventory, the upward pressure on median home prices moderated slightly, with prices advancing by 5.6% y/y compared to 6.1% in the month prior.

First-time homebuyers accounted for 31% of sales. This was down from 33% in the month prior but unchanged from year-ago. Meanwhile, homes typically stayed on the market for 30 days – unchanged from last month but down from year-ago (36 days).

Key Implications

This marks another disappointing report, with existing home sales now having contracted for three consecutive months. Although Hurricane Harvey, which disrupted activity in the last week of August, is partly to blame for this month's weakness, low inventory levels nationwide are one of the main culprits behind the weakening trend.

Resale activity is likely to go through some turbulence in the near-term, as the combined impacts of Hurricane Harvey and Irma likely weigh on the upcoming September report. However, we expect some respite in the fourth quarter as those impacts fade.

Further out, sales momentum should advance at a more steady pace, with demand for homes supported by continued job and income gains. Low inventories will continue to keep a lid on activity, but fast-rising prices that help encourage existing homeowners to put their homes on the market and increased homebuilding should provide some relief on that front. Having said that, both of these are likely to be gradual.

USD/CHF - 0.9629

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9613

Kijun-Sen level                    : 0.9622

Ichimoku cloud top                 : 0.9620

Ichimoku cloud bottom              : 0.9607

Original strategy :

Sold at 0.9625, Target: 0.9525, Stop: 0.9650

Position : - Short at 0.9625

Target :  - 0.9525

Stop : - 0.9650

New strategy  :

Hold short entered at 0.9625, Target: 0.9525, Stop: 0.9650

Position : - Short at 0.9625

Target :  - 0.9525

Stop : - 0.9650

The greenback has continued meeting resistance at 0.9649 and has remained locked within familiar range, retaining our view that further consolidation would take place and as long as said resistance at 0.9649 holds, mild downside bias remains for another fall towards 0.9563-65 (50% Fibonacci retracement of 0.9421-0.9705 and Friday’s low), break there would add credence to our view that top has been formed at 0.9705, bring further weakness to 0.9525-30 (61.8% Fibonacci retracement), however, downside should be limited to 0.9500 and 0.9480-85 should hold from here.

In view of this, we are holding on to our short position entered at 0.9625. Above 0.9649 would defer and risk rebound to 0.9675-80, break there would signal the pullback from 0.9705 has ended, bring retest of this level, a breach of this last week’s high would extend recent rise from 0.9421 to 0.9740-50 later.

GBP/USD - 1.3557

Most recent candlesticks pattern   : N/A

Trend                                 : Up

Tenkan-Sen level                 : 1.3559

Kijun-Sen level                    : 1.3541

Ichimoku cloud top              : 1.3542

Ichimoku cloud bottom        : 1.3514

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The British pound has remained confined within near term established range and further consolidation would take place, although risk of another corrective fall towards support at 1.3465 remains, break there is needed to signal a temporary top has been formed at 1.3619, bring retracement of recent upmove to 1.3430 and later towards 1.3400 but reckon 1.3375-80 would hold from here.

On the upside, whilst recovery to 1.3570-75 cannot be ruled out, break of 1.3605-10 is needed to signal the pullback from 1.3619 has ended, bring retest of this level first, break there would extend recent upmove towards 1.3650 later. As near term outlook has turned mixed, would be prudent to stand aside in the meantime.

EUR/USD - 1.1987

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.2003

Kijun-Sen level                  : 1.1991

Ichimoku cloud top             : 1.1972

Ichimoku cloud bottom      : 1.1961

Original strategy  :

Bought at 1.1970, Target: 1.2070, Stop: 1.1950

Position : - Long at 1.1970

Target :  - 1.2070

Stop : - 1.1950

New strategy  :

Hold long entered at 1.1970, Target: 1.2070, Stop: 1.1950

Position : - Long at 1.1970

Target :  - 1.2070

Stop : - 1.1950

Yesterday’s breach of indicated resistance at 1.1995-00 (previous resistance and 61.8% Fibonacci retracement of 1.2093-1.1838) adds credence to our view that the fall from 1.2093 top has ended at 1.1838 last week and consolidation with upside bias remains for further gain to 1.2030-35, then 1.2050-55, however, break of 1.2070 is needed to signal early upmove has resumed for retest of 1.2093 first. 

In view of this, we are holding on to our long position entered at 1.1970. Below 1.1950-55 would defer and risk weakness towards support at 1.1915 (Monday’s low) but only break there wold signal the rebound from 1.1838 has ended instead, bring further fall to 1.1880. 

USD/JPY - 111.39

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 111.38

Kijun-Sen level                  : 111.52

Ichimoku cloud top             : 111.57

Ichimoku cloud bottom      : 111.25

Original strategy  :

Buy at 110.70, Target: 111.70, Stop: 110.35

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 110.70, Target: 111.70, Stop: 110.35

Position :  -

Target :  -

Stop : -

Dollar’s retreat after rising to 111.88 yesterday has retrained our view that minor consolidation below this level would be seen and pullback to 111.00 cannot be ruled out, however, reckon 110.60-70 would limit downside and bring another rise later, above said resistance would extend recent upmove to 112.00, then 112.20 (previous resistance) but near term overbought condition should prevent sharp move beyond 112.40-45.

In view of this, would not chase this move here and would be prudent to buy dollar on subsequent pullback as 110.60-70 should limit downside. Below 110.45-50 would abort and signal a temporary top is formed instead, risk correction to 110.30, then towards 110.00 which is likely to hold from here.

The US dollar remained weak ahead of the Federal Reserve's announcement and the Fed Chair's press conference later in the session. Traders seemed to be bracing for an on balance dovish message from the Fed, even though the market still expected a rate hike at the end of the year to be more likely than not.

There was virtual unanimity that the Fed would not increase rates today but rather only announce the starting date for the gradual reduction of its huge 4.47 trillion dollar balance sheet. The Fed would probably start reducing its balance sheet by 10 billion dollars a month starting from October and very slowly increase the speed of the reduction next year. The big question that forex market participants will be waiting to be answered is with respect to the Fed board's forecasts for future rate increases (the "dot plot") and the assessment of economic conditions – together with fresh forecasts about growth, inflation and unemployment. There was a chance that the Fed would appear more dovish with respect to the prospects for tightening in 2018 and 2019 but would likely stay the course for a December hike. Such Fed meetings – complete with new economic forecasts and a press conference by the Fed Chair, take place only once a quarter – hence the market's heightened anticipation.

The dollar was struggling to hold on to its ground as euro/dollar kept making forays above 1.20 but was not able to secure a foothold above the psychologically important level. Euro/dollar was at 1.1992 at the time of writing. Dollar/yen was also around 50 pips away from the day's highs, trading at 111.39 while the pound was also strong at 1.3557 after briefly spiking above the 1.36 following positive economic news out of the UK.

British retail sales for August surprised the market by coming in much stronger than expected, while the previous month's figures were also revised higher. This contradicted evidence that wage growth was not keeping with inflation and creating problems for consumers, which raises some interesting questions as to what is really happening in the UK economy right now. Month-on-month the growth rate was 1% compared to expectations of 0.2% growth, while year-on-year the increase was at 2.4%. The latest data increased the odds that the Bank of England was going to hike interest rates at its next meeting on November 2. Euro/pound was pushed lower by the numbers to 0.8845 after spiking down to 0.8825 immediately after the release of the figures.

In the United States, the last economic data point before the Fed decision was existing home sales for August. They dropped 1.7% month-on-month compared to expectations of a small 0.3% increase. The annualized number of sales was 5.35 million units compared to 5.44 million the previous month. It was possible that the figures were distorted by Hurricane Harvey that hit Texas during August.

Finally in commodities, gold was holding above the $1310 an ounce level. The front-month US oil futures contract was holding onto $50 a barrel at 50.40 as higher than expected crude oil stocks were counterbalanced by a substantial draw in distillate stocks (-5.6 million barrels).

Choppy USD trade ensues ahead of today's highly anticipated Fed announcement, Yellen conference and dot plot forecats. The antipodean currencies dominate trading, led by a soaring kiwi as NZ's ruling National party pushes wirg a 9-pt lead ahead of Saturday's elections. UK retail sales beat expectations and US existing home sales fell by more than expected. New trade actions and videos will be posted this afternoon ahead of the Fed's announcement.

Trump was at the UN and ramped up rhetoric against North Korea and Iran but there is little international consensus in favour of near-term action, especially on Iran where France immediately said it was against abandoning the nuclear deal. At the moment, the dollar is less-sensitive to geopolitical headlines than it was a month ago. That's in part due to higher liquidity but there is also a newfound sense that a rash move is unlikely.

Balance Sheet to Overshadow Dots

Expect the focus to center on the balance sheet reduction program, which is anticipated to begin next month. What will be the planned reduction amount in 2017? $30 bn, $40bn or more? And how would the amount be distributed in 2018 and thereafter? Ashraf tells me to get ready for a potentially "faster & earlier than expected" balance sheet reduction schedule, which could prop USD higher.

The FOMC decision may prove to be more hawkish than many believe. The dot plot will be downgraded to some degree but 12 of the 16 dots in June pointed to more hikes this year and it would be a tremendous shift to eliminate that.

Yellen will also want to keep her options open, especially if Republicans can find a way to deliver a tax cut. The market overall is net short the US dollar but Yellen and the Fed are optimistic about the economy. All it would take to restart the US dollar rally is a fresh hint at a December hike and a reiteration that policymakers are confident inflation will return to 2% in 2018.