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Ambiguity In Fed’s Message Keep USD, US Yields Ranged

Published 04/30/2014, 06:57 AM

Forex News and Events:

Markets remain cautious heading into the U.S. Federal Reserve's policy meeting later. Stronger corporate earnings in the US gave yesterday’s US session a boost but there has been no real follow- through in Asia or Europe. The BoJ reiterated its standing policy stance overnight, with little impact on JPY as the market was anticipating this result. The BoJ statement said the bank would hold "money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen". Many, including the BoJ, view recent data as near achievement of their goals. However, we suspect that incoming data, including inflation, will head in the opposite direction and additional action will be needed in July (get ready JPY bears). We are heading into a data-full US session today. The US will release the 1Q (advance) GDP growth expected to have decelerated to 1.2% from the previous 2.6% (q-o-q annualized) due to difficult winter conditions and slowdown in economic activity in US at the beginning of 2014. However, today’s ADP report should show improvement on private payrolls in April, the consensus aims for 210K new private jobs versus 191K a month ago. The April NFPs (due on Friday) are seen at 215K (vs. 192K in March). The economic data is important to anticipate Committee’s economic outlook as USD fails to gain momentum on tighter policy expectations. The Fed will publish its new projections on growth, unemployment, inflation, Fed rate and overnight interbank loans on June 18th. The macro-metrics should continue recovering from hard winter conditions by that time.

Today at 18:00 GMT, the FOMC will announce its rate decision and is expected to reduce its monthly bond purchases by another 10 billion dollars to USD 45bn / month. Clearly the accompanying statement will surely be significantly measured as to not to dispute markets and with no follow-up press conference there will be lack of granularity need to shift USD from its current range. So far Fed Chair Yellen’s public communications have been greatly confusing for the markets since she has taken over the FOMC’s governorship. The market expectations for the first Fed rate hike swing between “six months” and “considerable time” after the end of bond purchases program. The lack of clarity on Fed’s policy outlook keep the US 10-year government yields stuck within 2.60% - 2.80% range. The Atlanta Fed President Lockhart asked the Fed members to sharpen their voice and pay more attention to rate forecasts. We do not expect any significant movement in USD and US rates at today’s meeting. The focus on policy normalization should intensify by the end of bond buying program.

USD

Today's Key Issues (time in GMT):

2014-04-30T10:00:00 EUR CPI Estimate YoY Apr 0.80% vs 0.50%
2014-04-30T10:00:00 EUR CPI Core YoY Apr A 1.00% , 0.70%
2014-04-30T13:00:00 USD Core PCE QoQ 1Q A 1.20% vs. 1.30% prior
2014-04-30T13:30:00 CAD GDP YoY Feb 2.50% vs. 2.50% prior
2014-04-30T13:30:00 USD GDP Annualized QoQ 1Q A 1.20 % 2.60%
2014-04-30T13:45:00 USD ADP Employment Change Apr 210K vs191K
2014-04-30T14:00:00 USD ISM Milwaukee Apr 56 vs. 56.03 prior
2014-04-30T14:45:00 USD Chicago Purchasing Manager Apr 57 vs. 55.9 proir
2014-04-30T19:00:00 SUD FOMC Rate Decision 30. Apr 0.25% vs. 0.25% prior

The Risk Today:

EUR/USD continues to consolidate after its rise from 1.3673 to 1.3906. Despite yesterday's weakness, the short-term technical structure is positive as long as the support at 1.3780 (09/04/2014 low) holds. Hourly resistances now stand at 1.3840 (intraday low) and 1.3879. In the longer term, EUR/USD is still in a succession of higher highs and higher lows. However, the recent marginal new highs (suggesting a potential long-term rising wedge) indicate an exhausted rise. A key resistance stands at 1.3967 (13/03/2014 high).

GBP/USD continues to struggle to decisively break the key resistance at 1.6823. However, as long as the support at 1.6763 (23/04/2014 low) holds, a break to the upside is favoured. Another key resistance stands at 1.7043, whereas another support lies at 1.6661 (15/04/2014 low). In the longer term, prices continue to move in a rising channel. As a result, a bullish bias remains favoured as long as the support at 1.6661 (15/04/2014 low) holds. A major resistance stands at 1.7043 (05/08/2009 high).

USD/JPY needs to break the resistance at 102.73 (22/04/2014 high) to improve the short-term technical structure. Hourly supports now lie at 102.23 (intraday low) and 101.96. Other resistances stand at 103.06 (intraday high) and 103.43 (07/04/2014 high). A long-term bullish bias is favoured as long as the key support area given by the 200 day moving average (around 100.94) and 101.33 (11/04/2014 low, see also the rising trendline from the 93.79 low (13/06/2013)) holds. A major resistance stands at 110.66 (15/08/2008 high).

USD/CHF strengthened yesterday, decreasing the odds to see a second down leg mirroring the one made from 0.8953 to 0.8744. Monitor the resistance at 0.8862. Another resistance can be found at 0.8953. A support stands at 0.8771 (28/04/2014 low, see also the rising trendline). From a longer term perspective, the structure present since 0.9972 (24/07/2012) is seen as a large corrective phase. However, a decisive break of the key resistance at 0.8930/0.8953 is needed to validate a bullish reversal pattern.

Resistance and Support

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