New York Forex Report: Buck Bid As FOMC kicks Off
New York Forex Report: The USD is steady to firmer in quiet trading, with markets essentially treading water ahead of the FOMC rate decision Wednesday. A 25bps rate hike is widely expected but beyond that consideration, markets will focus on the outlook for policy and especially whether the Fed’s collective thinking will “add a dot” for this year and imply that four hikes in total are more likely. The GBP and CAD are topping the performance league, registering the slightest of gains against the big dollar on the day, with weaker than expected UK inflation undercutting the pound after yesterday’s gains. At the lower end of the performance league, the JPY is somewhat softer after giving up gains made on the back of comments from new BoJ deputy governor who hinted that the central bank could begin to adjust policy before the 2% inflation target was reached. European and Asian stocks are mixed but US futures are in the red at writing as investors continue to fret about trade war risks.
The US will reportedly levy a range of tariffs on Chinese goods this week. Developed market bonds are narrowly mixed. Energy prices are firmer while gold and copper are lower on the day. It’s another barren session for US and Canadian data releases, leaving markets hanging on flows and technical for impetus today. The USD is likely to remain more or less better supported ahead of the FOMC meeting but trade tariffs work against the USD while there is also a chance that market expectations, which appear to be leaning towards the idea of a more hawkish Fed message, are disappointed. US government spending plans ( a deal is needed before next week), the Russia probe and heavy and ongoing US Treasury bill issuance also count as factors which may work against the USD to a greater or lesser extent.
NORTH AMERICA According to a Bloomberg report citing Washington Post, US President Trump’s attorneys have provided the special counsel’s office with written descriptions that chronicle key moments under investigation in hopes of curtailing the scope of a presidential interview.
EUROPE Trade surplus in the Eurozone narrowed to €19.9b in Jan-18 (Dec: 23.2b revised). Import grew 1.1% % MoM (Dec: +0.7%) while export dropped 0.7% MoM (Dec: +1.7%) indicating that global demand for European goods softened, possibly on the back of a strong euro. In a separate release, construction output dipped for the first time in 7 months by 2.2% MoM (Dec: +0.7%) which coincides with other recent economic readings in January as industrial production fell more than expected. In a positive development for UK’s Brexit negotiations, UK and EU agree to terms for Brexit transition period which will last from Brexit day on 29 March 2019 to 31 December 2020. Within this deal, EU citizens arriving in the UK between these two dates will enjoy the same rights and guarantees as those who arrive before Brexit. UK will also be able to negotiate, sign and ratify its own trade deals during the transition period while Northern Ireland will effectively stay in parts of the single market and the customs union in the absence of other solutions to avoid a hard border. Chief EU negotiator Michel Barnier hailed as a decisive step while Brexit Secretary David Davis said a good deal was now closer than ever. That said, the deal remains contingent that a solution to the Irish border is found, and Barnier reminded reporters on Monday that “nothing is agreed until everything is agreed.” Note that the transition agreement will not be legally binding until the final withdrawal treaty is signed and that treaty will not be until next year (2019).
ASIA In its release of the summary of opinions of Bank of Japan (BOJ) board members, several members at its recent March MPM said that the central bank needs to stick with its QE as inflation remains well below the 2% target. One member shared concerns about further yen strength and the effect of recent stock market declines. One said that “the BOJ is not at the point where it can consider normalising, but the BOJ should explain that normalising is not the same as tightening policy.” A more detailed release of the March MPM minutes will be available on 07 May
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Range continues contracting the daily close above 1.2330 opens 1.2548, this near term upside objective would be neutralised with a daily close below 1.2250.
1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Technical: 1-3 Day View – The daily close over 1.3925 sees price testing the anticipated 1.4093 resistance, as 1.3990 supports 1.4145 is the next upside target.
1-3 Week View – As 1.3650 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Bearish
Trading Take-away: Long
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – As 108.44 acts as resistance 103.22 is the next downside objective, near term resistance is sited at 107, with near term support sited at 106.04
1-3 Week View – The close below 108 negates the broader bullish theme and opens the psychological 100 magnet as the next downside objective, only a close above 108.50 stabilises the pair, opening 112.50
Retail Sentiment: Bullish
Trading Take-away: Short
EUR/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Breach of 131 sets a top to target 128.50 as 132.70 acts as resistance. A close over 133 stabilises the pair opening a retest of 135
1-3 Week View – The closing breach of 131 concerns the bullish consolidation bias opening a test of 128.50 while this area supports there is a window to retest and breach cycle highs above 137
Retail Sentiment: Neutral
Trading Take-away: Neutral
