Greenback falls ahead of the Fed decision
The price of crude oil declined by more than 4 percent today as investors continued to worry about supply and demand issues. Regarding supply, traders were not convinced that the cuts announced by Saudi Arabia and Russia would go far enough. They are also concerned with the continued increase in US production. Regarding demand, traders are worried that global demand will weaken as global growth slows down. A combination of increased supply and weaker demand is not ideal for an upward movement in price.
The US dollar declined today as the Federal Open Market Commission (FOMC) was scheduled to start the final meeting of the year. It is widely expected that the Fed will hike rates by 25 basis points. This will be the fourth rate hike this year. The rate comes at a time when many experts are cautioning against a hike. Yesterday, in a CNBC interview, Jeffrey Gundlach said that the best option for the Fed was not to raise. The same was repeated by renowned hedge fund manager, Stanley Druckenmiller. The US president and the Wall Street Journal editorial board has cautioned the Fed not to hike at this time. On data, the housing numbers were better-than-expected. The housing starts in November rose by 3.2%, which was better than the consensus estimates of minus 0.2%. In total, the number of building permits issued rose by 5% to 1.382 million.
The euro rose sharply against the USD. This was mostly because of the weaker USD because data from Europe disappointed. The German ifo business climate index rose to 101, which was lower than the consensus estimates of 101.8. This was the lowest level since 2016. This data measures the expectations of business executives for the next 6 months. The German Current Assessment was 104.7, which was lower than the estimated 104.9. The ifo’s business expectations measure was 97.3, which was lower than the estimated 98.3.
The price of Brent declined to an intraday low of $57.15. This was the lowest level since August last year. This price is lower than all the major moving averages on the four-hour chart. At the same time, the RSI has dropped closer to the oversold territory of 30. The hopes for oil bulls is that the inventory data from API which is expected overnight will show that inventories are declining. If it happens, it will be the second straight week of declining stocks, which could provide support. However, in the medium term, the price will likely remain under pressure as supply is set to increase in the coming year.
The USD/JPY declined sharply to an intraday low of 112.22. This was the lowest level since Monday last week. It was also an important support as shown in the hourly chart below. The price is below the 50-day and 25-day EMA. The pair has remained in the oversold territory since yesterday. With the Fed and BOJ preparing to make the final monetary policy decision tomorrow and Thursday, the pair will likely experience volatility in the next two days. This is evidenced by the gaining Average True Range indicator.
The EUR/USD pair rose sharply before paring some of the gains after the positive housing numbers. It reached an intraday high of 1.1400, before easing to 1.1375. On the hourly chart, the price is lower than the 25-day and 50-day EMA while the RSI has moved slightly lower from the overbought level. The volatility will likely remain in overnight trading.