The Federal Reserve didn’t offer many surprises to the market as the central bank kept its policy rate unchanged while paving the way to start unwinding its $4.5 trillion balance sheet ‘relatively soon’.

This is widely expected to be in September. 

The Fed also addressed concerns over weakness in inflation, which has become the main hurdle impeding a rate hike recently. The probability of a December rate hike, according to Bloomberg’s interest rate forecast, has dropped to around 40%, from 50% only three weeks ago. 

The market considered the FOMC statement dovish-biased, resulting in a weaker dollar and lower treasury yields. The US dollar index fell 0.7% to the 93.3 area, the lowest reading since June 16. EUR/USD surged to a thirty-month high in the 1.173 area. 

Technically, EUR/USD has broken out above the 123.6% Fibonacci extension level and is about to challenge the next targets of 1.175 (138%) and 1.186 (161.8%). The surge in the euro reflected the strong cyclical upswing of the eurozone economy, stabilised political situation and a relatively hawkish ECB. On the other hand, the strong euro will likely deliver a negative impact to the region’s export and growth in the months to come.  

Wall Street celebrated another record-breaking session, boosted by strong earnings from Ford, Facebook and Boeing. The Fed’s dovish statement also brought the market certainty on the future policy outlook, which is likely to remain accommodative until inflationary pressure kicks in. 

Asia

Asian markets are generally following the US into rally mode. The Hang Seng Index reached the 27,000 level during its intra-day trading for the first time in over two years. Hong Kong earnings will be key drivers to determine whether the Hang Seng could break out of this level in the weeks to come. India’s Nifty 50 index future also broke out of the record level of 10,000 last night. India’s growth story, backed by strong foreign inflows, is behind the legendary performance of India stocks market this year. 

Technical analysis:

India 50 - Cash

  • SuperTrend (10,3) sloped upwards
  • Broken above key psychological level of 10,000
  • Facing some resistance at the 100% Fibonacci extension level at 10,070, which serves as an immediate resistance level 

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