London Forex Report: Fed comments from 2 top officials suggest that the Fed is in no hurry to hike rate when they meet next month. New York Fed chair William Dudley cautioned against tighter financial conditions in the US, scaling back market’s expectation of a hike in March. The dovish statement backed oil rally, pushing Brent oil prices to USD 35/barrel.
Data on the US front pointed to moderation in economic momentum at the start of the year. Prints from ISM and Markit affirmed slower pace of expansion in the services sector. On a brighter note, job market data remained resilient although some slowdown in the pace of hiring was evident. US Dollar Index slumped 1.6% to 97.28 after sliding throughout US session, as markets continued to scale back expectations that the Fed could stay on track to normalized policy amid a slew of US data weakness and prevailing market weakness.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD plummeted across the board, touching 5-month lows against the EUR. Comments from New York Fed President William Dudley weighed on Fed rate hike expectations, highlighting concerns to be taken into account for stagnating global growth and slugging inflation prospects before raising interest rates again. Together with US Services PMI and ISM Non-Manufacturing PMI both came in worse than expectations, helping to trigger the largest daily USD sell-off in 7 years.
Technical: While 1.10/1.0950 provide intraday support expect a test of 1.1220 symmetry corrective objective.
Interbank Flows: Bids 1.10 stops below. Offers 1.11 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Buy pullbacks to 1.050 for 1.1220
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP rallied throughout the day, advancing after softer-than-anticipated US PMI data and comments from New York Fed President William Dudley weighed on Fed rate hike expectations. Sterling jumped through 1.46 for the first time since January, touching intraday highs at 1.4648 ahead of today’s BoE rate decision, which is broadly expected to be left on hold, and Governor Carney’s commentary regarding the UK economic outlook.
Technical: A close over 1.46 opens 1.4860 next, expect a broader corrective phase to continue to develop while 1.4370 remains intact as support.
Interbank Flows: Bids 1.4250 below. Offers 1.4450 stops above
Retail Sentiment: Bearish
Trading Take-away: Buy pullbacks against 1.45 for 1.4860
USD/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD was last down 1.72 percent against the JPY at 117.88. Apart from disappointing US Markit PMI and ISM non-manufacturing composite, the speech from Fed’s Dudley also suggested dovish view on the dollar. USD/JPY was down to an intraday low of 117.03 yesterday, wiping out all gain from previous Bank of Japan’s action. Wait-and-see is now the preferred approach as the non-farm data will be released.
Technical: While 119.50 contains upside reactions expect a grind lower to retest 115.90
Interbank Flows: Bids 116.50 stops below. Offers 119.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: A slew of Asian prints from Nikkei pointed to diverging growth in the manufacturing and services sectors. Services sector in Japan expansionary with Japan’s gauge surging to a 5-month high of 52.4 in Jan (Dec: 51.54). Growth in the services sector could offset the expected slowdown in the manufacturing sector.
Technical: While 130.40 supports intraday downside reactions expects s retest of 132.30 offers and stops above, a close above 132 opens a test of 134 next.
Interbank Flows: Bids 130.50 stops below. Offers 132.50 stops above
Retail Sentiment: Bearish
Trading Take-away: Buy pullbacks against 130.30 for 134
AUD/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD extended loss against the Aussie dollar after data showing that US service sector activity remained weak in January. The Institute for Supply Management said its non-manufacturing index dropped to 53.5 from previous of 55.3. AUD/USD jumped to 0.7188 high, fuelled by risk appetite on back of sharp rise in oil prices. The Australia NAB Business Confidence posted a reading of 4.0, beating the previous of 0.
Technical: While .7130 caps intraday downside expect a test .7200. Only a closing breach of .71 eases immediate upside pressure.
Interbank Flows: Bids .7000 stops below. Offers .7150 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: USD/CAD completely retraced its rally this year, recorded fresh year-to-date lows of 1.3750s, owing to the weakness of USD across the board and higher oil prices. Crude oil prices soared on comments from Russia’s Foreign Minister, expressing Russia's willingness to meet with OPEC and non-OPEC members for the discussion on an output reduction, reigniting hopes of a deal to trim production.
Technical: AB=CD corrective swing target at 1.3750 achieved, while this area supports expect a retest of 1.40 from below.
Interbank Flows: Bids 1.3750 stops below. Offers 1.3950 stops above
Retail Sentiment: Neutral
Trading Take-away: Sidelines
