Risk-Off Ahead Of FOMC

Forex News And Events

Buy USD in the short term (by Peter Rosenstreich)

USD has been able to rally thanks to an improvement in US economic data and marginal expectations for a less-hawkish FOMC statement. Moving forward this week we should see further bullish, but choppy USD trading. On the international front, sentiment around China’s outlook has improved considerably while commodity prices are grinding higher, both drivers that could push the Fed to shift from a cautious stance. IMM data indicates that speculative USD long oversold positions have unwound somewhat but that there is still room for a USD long-term average. US yields curve front-end has reacted by shifting upwards, supporting the USD recovery. However, outside this short-term bounce, we anticipate that USD will remain weak (yet downside is limited) as policy pergent themes get pushed out further. Wednesday’s FOMC has risk of disappointing investors as an April FOMC statement is more likely to be dovish or lack any kind of hawkish slant that would even faintly signal a rate hike in June. It is likely that the Fed will continue to emphasize that risk is balanced. The highest risk to our forecast would be the Fed acknowledging that conditions in global financial markets have improved. Given, the current environment, we are constructive on USD/CAD in the near-term and are watching for moves towards 1.2750 to reload in long in order to target the 1.300 range resistance.

Expect further easing from Japan (by Yann Quelenn)

The USD/JPY is trading at its highest level in three weeks ahead of Thursday’s much-anticipated BoJ meeting, due to growing rumours that the central bank may add further stimulus. The yen is still much stronger against the greenback than it was at the start of this year when the pair lay around 118/120.

Economic fundamentals are still concerning. Firstly, the BoJ’s fight against deflation seems endless and the surprise introduction of negative interest rates in January has not yet managed to foster inflation. Secondly, amid global uncertainty, the yen is attracting investors due to its safe haven status and thirdly, recent domestic data is also concerning, especially as April PMI fell further to 48.0 from 49.1 a month previous and Tertiary Industrial Activity edged down 0.1% in February. On Wednesday will see the release of the important All Industry Activity Index and consensus expects a decline of 1.4% for February.

We therefore believe that the BoJ will continue to take additional easing steps and should further ease rates (currently holding at -0.1%) an additional time as the country is clearly not in positive momentum. Policymakers continue to state that inflation should be achieved as soon as possible. Governor Kuroda, like ECB president Mario Draghi, is doing “whatever it takes”. Yet, we remain bearish on the USD/JPY and believe that the main drivers of the pair are the global outlook and the deteriorating US economy.

Gold – Setting Higher Lows.


Today’s Key Issues

The Risk Today

Yann Quelenn

EUR/USD has exited the uptrend channel and is approaching hourly support at 1.1144 (24/03/2016 low). Resistance can be found at 1.1465 (12/04/2016 high). Stronger support is located a 1.1058 (16/03/2016 low). Expected to show further increase within the downtrend channel. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located at 1.1640 (11/11/2005 low). The current technical appreciation implies a gradual increase.

GBP/USD has broken resistance implied by the upper bound of the short-term uptrend channel near hourly resistance at 1.4514 (18/03/2016 low). Hourly support is given at 1.4320 (04/04/2016 high). Expected to show further increase toward resistance at 1.4514. 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 keeps on pushing higher. Hourly resistance can be found at 111.91 (intraday high) while hourly support can be found at 107.68 (07/04/2016 low). Short-term momentum is clearly bullish. Expected to show further increase. 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 has exited the uptrend channel and the pair has broken hourly resistance at 0.9788 (25/03/2016 high) but has failed to hold above it. Hourly support can be found at 0.9499 (12/04/2016 low). Expected to show further increase as short-term buying pressures do not seem strong. 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.

Resistance and Support

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