London Forex Report: The Fed held its benchmark rate target at 0.25% to 0.5% as expected while cutting its outlook on tightening path. The dot plot indicated that the central bank may hike rates twice this year from its Dec projection of four hikes, underscoring increasing concern on global and domestic risks. Economic projection for GDP growth was revised lower to reflect prevailing downside pressure. The economy is expected to expand 2.2% in 2016 (previous: 2.4%) and inflation to rise 1.2% (previous: 1.6%). In addition, Fed Chair Yellen said that the central bank is not considering negative interest rates. USD slumped, returning all early gains on better than expected US data after the FOMC lowered markets’ expectations for future hikes. The USD Index was inching higher but plunged almost immediately post-FOMC statement, closing 0.76% lower at 95.89.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: The euro recovered all earlier losses and climbed more than 1.5% to a new session high of 1.1242, the highest since mid-February, following the Fed’s statement. Big question for traders now is will markets shift their focus back to the easing measures from ECB and stem further upside
Technical: Intraday support is sited at 1.1060/40 held solid and provided the platform for an explosive move higher expect a further grind higher to test pivotal resistance at 1.1370 while 1.1150 supports intraday. Only a close below 1.10 eases immediate bullish pressure
Interbank Flows: Bids 1.1150 stops below. Offers 1.13 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
GBP/USD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Fundamental: Despite UK jobs data being broadly better than expected, sterling continued to grind lower at the European session on Wednesday. However, the dovish outlook provided by FOMC gave a helping hand to cable while it surged from lows of 1.4051 to 1.4272. Markets shift their focus to BoE rate decision meeting due today and markets expect the BoE would remain its monetary policy unchanged.
Technical: Bids towards 1.4030 survived as GBP staged a sharp reversal testing broken trend support as resistance in the 1.4260/80 area while this level contains the reversal there is potential for renewed downside. Only over 1.43 eases immediate downside pressure.
Interbank Flows: Bids 1.4150 stops below. Offers 1.43 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Being a main composite in the USD Index, the JPY was stronger after the Fed’s dovish comments. USD/JPY dropped from around 113.81 to an intraday low of 112.31. Overnight downside pressure has persisted and the pair has broken 112 and is trading with an offered tone.
Technical: Failure at 112 opens a full retest of bids towards 111 again. A sustained breach here will leave the psychological 110 exposed. A close over 113 is required to neutralize the immediate downside threat.
Interbank Flows: Bids 111 stops below. Offers 112.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
EUR/JPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Fundamental: Final report of machine tool orders affirmed that demand for tools softened at a steeper pace. Amid weakness in foreign purchases, order book tumbled 22.5% YoY in Feb (Jan: -17.2% YoY). Trade balance turned positive in Feb. Surplus came in at 242.8 billion yen in Feb (Jan: deficits of 648.8 billion).
Technical: While 125 acts as support for the current advance, expect a test of symmetry resistance at 128.15 as the immediate corrective objective. Failure at 124.50 suggest false upside break and opens retest of 123.
Interbank Flows: Bids 125 stops below. Offers 127.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: Australian jobs data for February was mixed, with unemployment rate dropping to 5.8% from 6% and overall employment rising by 0.3k against 10k expected. AUD/USD reacted positively to the data release as markets remain content with RBA’s view that conditions in the labor market are improving.
Technical: While .7400 supports intraday, expect further upside pressure targeting .7672 next. Only a failure at.7300 support threatens near term bullish bias.
Interbank Flows: Bids .7400 stops below. Offers .7670 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Around 15 major oil producing nations, accounting for 73 percent of global oil output, support holding talks next month on a deal to freeze output even if Iran declines to participate. Brent crude surged above $40 a barrel in response to the announcement. With indication that the Fed will only look for two rate hikes this year, the USD has been heavily sold across the board. USD/CAD, as a result, traded much lower overnight to reach intraday low of 1.3089.
Technical: While 1.3160/80 contains corrections, downside pressure remains the driver with bears focusing on a AB=CD ultimate downside objective at 1.2966. Only a close over 1.3650 negates the bearish bias.
Interbank Flows: Bids 1.3000 stops below. Offers 1.3150 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
