- Financial markets have ruled out a rate hike from the FOMC today. However, markets are currently pricing in a rate hike to happen before June.
- Global recession and in particular the Chinese slowdown, where exports have decreased by 25% in 2015, reveals U.S. domestic difficulties. We believe that there are more significant downside risks to the U.S. economy and we expect weaker U.S. demand in the medium term. This supports a more dovish stance from the Fed for 2016.
- Retail sales data is still on the soft side. February’s print was very weak at-0.1% and January’s data has been largely revised down (-0.4% m/m vs. 0.2% m/m).
- The first rate hike did not particularly disturb the market. It is likely that the Fed will continue to hint at a 2016 hike in order to avoid unnecessary market turmoil.
- The Fed sounded dovish at its last meeting bringing up the subject of negative interest rates. Even though this was ruled out, we believe that a larger global recession could change this attitude. We expect a comment from the Fed about negative interest rates spreading all over the world.
- Inflation is still far from the Fed’s target of 2% but January core inflation saw its biggest rise in about four years, growing by 0.3% despite low energy prices driving inflation lower. Despite this, the Fed is betting on the current low commodities price situation being transitory, which could prove to be the case as oil prices are currently bouncing back. Further improvement remains to be seen.
- U.S. elections consumer sentiment is likely to improve as patriotic feeling tends to improve at such times. This may provide a fresh boost to domestic consumption and push inflation higher, which would add some support to the raising of rates but would not be sufficient, in our view to trigger a rate hike this year.
- Job market conditions are constantly improving. The unemployment rate remains low, around 4.9%, despite continued weakness in the manufacturing sector. The situation was pretty much the same in December and it did not prevent the Fed from hiking. In other words, we believe that the labour market is not the primary driver of a rate hike if of course it remains as resilient as it is right now.
NZD subject to downside risk
It has been almost a week now that the RBNZ cut the OCR rate to 2.25% in a surprise move. Since then the New Zealand dollar has been unable to move higher, in spite of the rally that followed the sharp depreciation immediately after the announcement. NZD/USD is now stuck at around 0.66 as traders await tonight’s FOMC decision and the release of the fourth quarter GDP figures from New Zealand. The Kiwi economy is expected to have expanded 0.7%q/q in the December quarter, compared to a growth rate of 0.9%q/q in the third quarter. The growth figure could print potentially even below the 0.7% consensus as the country copes with slowing global demand and especially from China. And the outlook does not look great as the Fonterra Cooperative Group cut its milk price payout forecast to a 9-year low, down to $3.90 per kgMS, which would surely force farmers to reduce production volume over the coming year in response to those depressive prices. A weaker kiwi is therefore more than necessary to ensure a long-term recovery for New Zealand key export industries and we therefore believe that Governor Wheeler will make sure the NZD remains competitive.
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AUD/USD - Bearish Retracement. 
EUR/USD keeps on trading around 1.1100. Hourly resistance lies at 1.1218 (10/03/2016 high). Hourly support can be located a 1.1072 (15/03/2016 low). Expected to show further consolidation. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).
GBP/USD is clearly following a medium-term bearish trend-line. Hourly resistance can be found at 1.4437 (11/03/2016 high) while hourly support can be found at 1.4033 (03/03/2016 low). The technical structure suggests further decline. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY remains in a range between strong resistance at 114.91 (16/02/2016 high) and support at 110.99 (11/02/2016 low). Hourly support lies at 112.61 (10/03/2016 low & 15/03/2016 low). The technical structure suggests a growing short-term bullish momentum. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).
USD/CHF is not very volatile these past few days but keeps on edging higher. An hourly support lies at 0.9796 (11/03/2016 low). Hourly resistance is located at 0.9902 (intraday high). Expected to show further increase. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.