FX.co ★ Who will fly with a post from the Fed - a Dove or a Hawk?

EUR/USD, GBP/USD

The Ifo business climate index marked Tuesday with another historical record (in July it beat the record of the previous month, as it increased to 116.0 from 115.2 in June, it was raised from 115.1). The consumer confidence index (125.4) also showed a new historical record, but the sub-index of long-term expectations for half a year ahead (107.3) so far remains below that of January-February 2014 (108.9). The euro's rise by 60 points started three hours after the release of such upbeat data and ended with a price that returned to opening levels with the beginning of the US session. This could mean that investors do not believe in survey indices, which always increases with the slight prospect of improvement. Focus is also on the Fed meeting, the results of which will be announced today at 18:00 London time. In the UK, the balance of production orders from the CBI for July dropped from 16 to 10, against a forecast of 12. The final drop in the pound was a significant 3 points.

In the US, the S&P/Case-Shiller home price index of 20 major metropolitan areas in May has remained at the previous 5.7%, but with a seasonally adjusted rise by 0.1% m/m, the overall housing price index added 0.4% in May. The Conference Board's consumer confidence grew significantly in July to 121.1 against expectations of 116.5 and 117.3 in June. Business activity in the Richmond Fed Manufacturing Index for July increased from 7 to 14. The US stock market gained 0.29% due to strong quarterly reports from several large companies (Caterpillar, DuPont, United Tech). Gold on traditional correlation with growth of yields of state bonds fell by 0.42%. Thus, investors were mentally prepared for the "hawkish" tone of the FOMC's accompanying statement. This was against forecasts spread in the media about the central bank keeping a dovish tone due to recent weak inflation indicators.

UK data will be released today at 08:30 London time. The number of issued mortgages for June is forecasted to drop from 40.3 thousand to 39.9 thousand. GDP for the second quarter is expected to fall from 2.0% y/y to 1.7% y/y.

In the US, sales of new homes are forecasted in June to reach 615 thousand against the previous 610 thousand. As for the tone of the Fed statement, we expect to see a hawkish tone. We are looking forward to a decline in the euro to 1.1485 and a fall in the pound in the range of 1.2810/30.

USD/JPY

The Japanese yen is quickly trying to restore lost positions after Friday's drop under the overall pressure of the dollar. Today, Asian stock indexes are gaining following the 0.47% advance of the United States' Dow Jones. The Nikkei 225 rose 0.43%, S&P/ASX200 was up 0.96% and the Nifty50 climbed 0.18%. The Chinese Shanghai Composite was the only index in the red, down by 0.37%. Yesterday, the yen added 80 points from the start of the European indices' growth. Yield on the 5-year Japanese government bonds rose from -0.064% to -0.051% in today's Asian session. Even greater growth was shown by yields on similar US bonds, from 1.823% to 1.890%.

The corporate services price index for June, released today, was 0.8% y/y - at the forecast level. The previous index was revised higher to 0.8% y/y from 0.7% y/y. On Friday, a large series of Japanese data will be released. Retail sales are expected to grow from 2.1% y/y to 2.3% y/y, household spending in June is expected to grow from -0.1% y/y to 0.6% y/y. Unemployment might drop to 3.0% from 3.1%. Everything is going well for the yen. The announcement of the FOMC is currently awaited. We are waiting for the USD/JPY to rise to 114.40.