London Forex Report: The Fed held rates unchanged in the range of 0.25-0.50% as expected but the accompanying press statement highlighted prevailing downside risks this year, pushing back expectation of a hike in March. The central bank will “closely monitor global economic and financial developments” and reiterated that “economic conditions will evolve in a manner that will warrant only gradual increases in Fed funds rate”. Data wise, growth in the property sector remained firm. USD weakened, the US Dollar Index fell 0.46% to 98.90, overturning earlier gains before the FOMC rate announcement as the Fed is seen to be more biased towards a slower pace of policy tightening.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Fed kept the rate unchanged as widely expected and said it will closely monitor the global economic and financial developments. The Fed offered a cautious global outlook, markets are pricing that the next rate will be at the March FOMC meeting.
Technical: Trading mid to upper range, a sustained breach of 1.08 bids opens 1.07 range lows. A breach of 1.0990 trend resistance opens a broader 1.1240 symmetry corrective objective.
Interbank Flows: Bids 1.08 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Play the range, buy dips to 1.07 sell rallies to 1.10
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP was quiet in Asian session, it dropped heavily to 1.423 at the start of US session, remaining near a 7-year low of 1.4080 set a week ago. Traders are cautious before the 4th-quarter reading of British GDP which is likely to show a slowdown on annual growth. The GDP data will surely signal whether interest rate hike should be pushed even further out.
Technical: A breach of 1.42 opens a retest of last weeks 7-year lows. Over 1.44 eases immediate downside pressure and sets up a broader correction.
Interbank Flows: Bids 1.42 below. Offers 1.44 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD/JPY managed to gain as far as 119.06 after the FOMC meeting while it then slipped back to 118.66. The JPY has not moved far in either way since market sentiment turned mixed after the Fed meeting. Markets will now turn their focus to BoJ meeting due tomorrow.
Technical: While 117.90 caps downside attempts expect a retest of 119 offers. Only above 119.30 eases immediate downside pressure. A breach of 117.40 resets the bearish tone.
Interbank Flows: Bids 117.50 stops below. Offers 119 stops above
Retail Sentiment: Bullish
Trading Take-away: Stay long from 117.70 for 119.20 stops to entry
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Retail trade unexpectedly fell in December after dropping sharply in November, adding to concerns about the state of Japan’s economy and what the BoJ are doing to avoid another recession. All eyes now turn to Friday’s inflation data for December, expected to show the national core CPI rising at a steady pace of 0.1% y/y in December, well below the BoJ’s target.
Technical: A close over 129.50 eases immediate bearish tone bulls target 131 next while 127.50 supports, a breach of 127.30 opens a retest of year to date lows.
Interbank Flows: Bids 127.50 stops below. Offers 129.50 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental:The AUD squeezed higher after the inflation figures came slightly above forecasts but retreated during the US session. The Australian core inflation slowed to the floor of the central bank’s target range, weighing on the Aussie. The Reserve Bank of Australia holds its monthly policy meeting on February 2 and is widely expected to keep rates at a record low of 2.0 percent.
Technical: While .6930/50 caps intraday downside expect a test .7050. Only a breach of .7150 eases immediate downside pressure.
Interbank Flows: Bids .6900 stops below. Offers .7100 stops above
Retail Sentiment: Neutral
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Fundamental: CAD gained against a broadly weaker USD as the US Federal Reserve acknowledged global worries and crude oil prices rose. Though the crude prices had fallen on a surprise rise in US inventories, the oil futures jumped after Russia indicated it could co-operate with OPEC - which sparked hopes for a deal to reduce a global oversupply.
Technical: While 1.4310/30 caps upside reactions expect a broader corrective phase to test 1.40 support. Only above 1.44 eases immediate downside pressure and opens a retest of 2016 highs.
Interbank Flows: Bids 1.4050 stops below. Offers 1.4350 stops above
Retail Sentiment: Bullish
Trading Take-away: Sell pullbacks to 1.43 for 1.40
