All eyes on the Fed today
- Fed’s FOMC is set to have its interest rate decision today (18:00 GMT) and is widely expected to hike rates by 25 bp reaching +1.75%. Fed Funds Futures currently imply a 100% probability of the bank hiking rates by 25 basis points. Market focus is expected to shift to the dot plot, the accompanying statement and the following press conference. It could prove difficult for the bank to signal a four hike rate path for 2018 through the dot plot, however, it may not be able to avoid a more optimistic tone in general. Should there be an upgrade of the economic outlook or a hawkish tone in the statement and/or the press conference the USD could strengthen. Please be advised that high volatility is expected not only upon the announcement of the decision, but during the press conference as well.
- EUR/USD as analysed, traded in a sideways manner yesterday with some bearish tones approaching the 1.2230 (S1) support level. We see the case for the pair to trade in bearish mood as the US dollar could strengthen by the FOMC interest rate decision. Should the bears be in charge we could see the pair breaking the 1.2230 (S1) support level and aim for the 1.2100 (S2) support barrier. Should the bulls take the reins we could see the pair breaking the 1.2355 (R1) resistance line.
RBNZ expected to remain on hold
- Also, RBNZ is to announce its cash rate decision later today (20:00 GMT) and is expected to remain on hold at +1.75%. NZD OIS imply a probability of 99% for the bank to remain on hold. Market focus is expected to shift to the accompanying statement. We see the case for the overall message to be well balanced, however it could be difficult to avoid mentioning the improved GDP growth rate and on the other hand the low inflation rate. We see the case for the overall message to be well balanced, however, it could be difficult to avoid mentioning the improved GDP growth rate and on the other hand the low inflation rate. Should the accompanying statement have a more dovish tone we could see the Kiwi weakening.
- NZD/USD traded in rather sideways manner for the past few days however it broke the 0.7180 (R1) support level (now turned to resistance). We see the case for the pair to continue to trade in sideways manner however, should the USD strengthen as a result of the FOMC interest rate decision we could see it taking a bearish turn. Should the pair find buying interest along its path, we could see it breaking the 0.7180 (R1) resistance level again and even breaching the 0.7250 (R2) resistance hurdle. Should it come under selling interest we could see it breaking the 0.7110 (S1) support level and aim for the 0.7035 (S2) support zone.
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In today’s other economic highlights:
- In the European session, we get the UK’s employment data for January while in the North American session we get the US current account deficit for Q4, the US Existing Home Sales for February and the Crude Oil Inventories for the current week which could support Crude Oil.
NZD/USD
·Support: 0.7110(S1), 0.7035(S2), 0.6950(S3)
·Resistance: 0.7180(R1), 0.7250(R2), 0.7355(R3)
EUR/USD
·Support: 1.2230(S1), 1.2100(S2), 1.1920(S3)
·Resistance: 1.2355(R1), 1.2495(R2), 1.2680(R3)