The Federal Reserve, as expected, held monetary policy unchanged at 2% when it announced its decision shortly after 2:00pm. However, the vote to leave rates unchanged was not by unanimous decision with Dallas Fed President Fisher voting in favor of a rate hike. Although the dollar initially jumped higher following the announcement, it quickly relinquished those gains as traders digested the accompanying statement.

The key highlights from the statement were an emphasis by the FOMC on increased upside risks to inflation and inflation expectations. It also acknowledged that although downside risks to growth remain, they have appeared to diminished somewhat. The statement was largely inline with our expectations, with the Fed stressing heightened risks to inflation while tempering the market outlook for imminent rate hikes.

Data today saw durable goods orders slightly worse than expected with the headline figure in May coming in flat versus a -0.6% reading previously. The excluding transportations durable goods orders posted a -0.9% decline, reversing the previous month's 2.4% increase. Meanwhile, new home sales for May declined by less than forecast at 512k units, down from 526k units in April. Economic reports scheduled for release on Thursday include Q1 GDP, PCE, weekly jobless claims, and existing home sales.

Euro Consolidates

The euro consolidated above 1.5540, rising to a session high near 1.5614, benefitting from a combination of further hawkish commentary from ECB President Trichet and upbeat Eurozone economic data. The April industrial new orders report shot up to 2.5%, far outpacing estimates for an improvement to -0.6% from -1.0% in March, while the annualized figure surged to 11.7%, compared with forecasts for an improvement to 1.5% from -2.5% in the previous year.

Meanwhile, ECB President Trichet testified before Parliament, delivering a hawkish tone and raising market expectations that the Bank may continue hiking beyond the 25-basis point hike in July already priced in. Although Trichet expressed concern over further increases in wages and prices, he refrained from pre-committing to a series of increases in interest rates. We look for the euro to continue to be supported by the prospect of several policy hikes while the FOMC and BoE are restrained by their sluggish economies.

The next key set of Eurozone data is slated for release on Thursday, with Germany's June CPI, retail sales and Eurozone April current account balance due out. The inflation data from Germany is seen edging higher to 3.2% from 3.0% a year earlier, while easing to 0.2% from 0.6% a month earlier. However, retail sales in May are expected to reverse the 1.7% decline in April, rising by 0.5%.

EURUSD will encounter interim resistance at 1.56, followed by 1.5620 and 1.5670. Additional ceilings are seen at 1.57, backed by 1.5740 and 1.58. On the downside, support is seen at 1.5540, followed by 1.55 and 1.5460. Subsequent floors will emerge at 1.5430, backed by 1.54 and 1.5350.