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Global macro overview for 31/01/2018

The two-day meeting of the Federal Open Market Committee (FOMC) ends on Wednesday, January 31, with the publication of the interest rates decision at 07:00 pm GMT. The market consensus is to maintain the target for the federal reserves rate at 1.25-1.50% (no hike).

The US economic data since the December meeting was relatively positive, emphasizing maintaining a solid pace of recovery. Despite the fact that the increase in employment in December was below expectations, the still high rate (148k) made it possible to maintain the unemployment rate at a 17-year-old minimum of 4.1%. PCE Core inflation at 1.5% on a yearly basis is still below the Fed's inflation target of 2.0%, but the general trend is upward and long-term inflation expectations have started to rise. The preliminary GDP reading for the fourth quarter on the surface was weaker than expected (2.6% vs. 3.0%), but the key components were good: private consumption increased by 3.8% after 2.2% in the third quarter, and investments increased by 7.9%, versus 2.4% a quarter earlier). Net exports and a rebound of strong inventory growth in the third quarter were responsible for disappointment.

The development of the situation in the economy does not force significant changes in the communication on this topic (apart from leaving the fragment about the risks related to hurricanes). In the part concerning monetary policy, it is also difficult to expect surprises. In January there is no planned press conference, and this traditionally excludes the decision to change the level of interest rates, especially immediately after the December hike. What's more, the first meeting in 2018 is also the last of Janet Yellen as FOMC Chairperson. Her term of office ends on February 3, and her current board member, Fed Jerome Powell, takes her place. It would be a good idea to leave the new president a choice for monetary policy in the coming months.

Let's now take a look at the US Dollar Index technical picture at the H4 time frame. The market awaits the FOMC decision in a tight range between the level of 88.45( support) and 89.62 (resistance). The momentum indicator is at the neutral level but points to the downside. In a case of a rally higher, the next resistance is seen at the level of 90.11 and 90.98.


The material has been provided by InstaForex Company -