The dollar is falling after expectations about raising interest rates three times instead of four and Gold climbing to the 1336 level
The Dollar slumped against its Rivals after the Fed hiked rates 0.25 basis points, totally discounted by the markets. Fed Chair Jerome Powell signaled growing confidence in the US economy in his first news conference. However, the dot for 2018 weighed in favor of 2 more rate hikes in 2018. Wall Street stocks drifted lower following a brief rise. Brent Crude Oil prices jumped 3 % as US inventories fell against a forecast rise.
Outlook: The market’s verdict was that the Fed was not hawkish enough due to expectations prior to the meeting. Traders were hoping for the Fed to signal 4 rate hikes this year. The FOMC policymakers had eight members who predicted a total of 3 hikes while seven saw 4 rises in 2018. That’s a close call and one more dot could change all of that in June. In its post-meeting statement, the FOMC said that “the economic outlook has strengthened in recent months”. Fed officials raised their projections for GDP growth this and next year.
The US Two Year Treasury yield which is the most sensitive to expectations for monetary policy fell 5 basis points to 2.30%. However , the yield on the benchmark US Ten year bond was little-changed, closing one basis point lower at 2.88%. Other global yields were mostly flat.
Trading View: While the Dollar could ease further because the Fed’s dot remains at 3 rate hikes, we are back in familiar ranges. The RBNZ just kept its official cash rate unchanged at 1.75%. That puts it’s OCR on now on par with the US Fed Funds rate. The RBNZ reiterated that monetary policy will remain accommodative for a considerable period. The Kiwi hardly moved, keeping its gains versus the Greenback.
The Bank of England meets later today and is expected to signal a May rate rise. The yield on the Ten year UK Gilt rose to 1.53% (1.48% yesterday). The UK Jobless rate beat expectations however claims for unemployment benefits rose where a drop had been forecast.
The US Existing Home Sales rose more than expected while the US Current Account deficit rose.
The Dollar Index (USD/DXY) slumped to 89.66 from 90.41 yesterday. The Dollar’s fall was broad-based. USD/DXY has immediate support at 89.60 and then at 89.40. Immediate resistance lies at 89.85 and 90.00. The failure to break above 90.40 puts us back into familiar range territory between 89.40 and 90.40. Look to trade that wider range with today’s likely 89.60-90.00.
Economic data and events today:
Australian Employment Change and Unemployment Rate (GMT 12.30 am Mar 22/Local Time 11.30 am, Mar 22) – forecast is for a gain in employment and no change in the Jobless rate
Euro Area and Euro Zone Manufacturing and Services PMI – (GMT 8-8.30 am, Mar 22/Local Time 7-7.30 pm, Mar 22)forecast for is slight decrease in most of the data
German IFO Business Climate – (GMT 9 am, Mar22/Local Time 8 pm, Mar 22) – forecast is for a small drop in the Index.
UK Retail Sales – (GMT 9.30 am, Mar22/Local Time 8.30 pm, Mar 22) – forecast is for an increase
BOE MPC Policy Rate Decision and Monetary Policy Summary – (GMT 12 noon, Mar 22/Local Time 11 pm, Mar 22) – The BOE is forecast to unanimously 9-0 keep its policy rate unchanged
EUR/USD – The Euro rose 0.78% to close at 1.2342 (1.2252 yesterday). Having held the 1.2240 level well, the Single Currency rallied to an overnight high of 1.23478. Euro area Manufacturing and Services PMI data, as well as the IFO’s latest release of German business climate, are due later on.
This will be a reminder that the Euro Zone’s economic pick-up has slowed in past months. EUR/USD has immediate resistance at 1.2360 and then 1.2380. Immediate support lies at 1.2315 and 1.2285. We’re likely to back into a wider 1.2220-1.2420 range. Market positioning remains long Euro bets at multi-year highs. Likely range today 1.2315-1.2355. Look to sell into any rally.
GBP/USD – jumped to close up 1.04% at 1.4145 (1.4000 yesterday), also 5-week highs. The Bank of England is expected to keep their official cash rate at 0.5% at their policy meeting later today. However, the BOE is also expected to signal a rate rise in May. The rise in the GBP ten-year yield seems to indicate so. Positive Brexit news has contributed to Sterling’s firm tone. The question is, like the US Dollar, how much of Sterling’s rise is already built in at these levels. We may be in for a disappointment later. GBP/USD has immediate resistance at 1.4150/60 (14150 overnight high). The next resistance level is 1.4180 and then 1.4200. Likely range 1.4090-1.4150. Look to sell rallies.
USD/JPY – slipped back to finish at 106.05 (106.48 yesterday). The Dollar fell to an overnight low of 105.88 after the Fed rate hike. The fall in stocks weighed on the USD/JPY. The COBE VIX Index (Volatility Index) has stabilized just under the 20.00 level (17.26 close). The VIX hit 21.8 on Monday. The US Ten year yield fell one basis point to 2.88% while the Japanese Ten Year JGB was unchanged at 0.03%. We are likely to back to a wider 105.70-107.20 range. With Japan back in the markets today expect good support around the 105.80-106.00 level to provide immediate support. USD/JPY has immediate resistance at 106.20 and then at 106.40. Look to buy dips with a forecast range of 105.85-106.55.
NZD/USD – finished higher at 0.7234 (0.7184 yesterday). The Kiwi kept its gains even as the RBNZ kept it’s rate unchanged and remained accommodative in its policy. I highlighted that New Zealand’s Official Cash Rate is now at par with the US Fed Funds rate (both at 1.75%). The NZ Ten Year bond yield is at 2.83%, unchanged from yesterday. That’s a differential of 5 bps in favour of the US rate. A month ago the differential was 4 bps in favor of New Zealand (NZD 10 year yield 2.96%, US 10 year yield 2.92%). NZD/USD was at 0.7345, just one big figure higher than where we are now. NZD/USD has immediate resistance at 0.7250 (overnight high 0.72457). Immediate support can be found at 0.7220 and then 0.7205. Look to sell rallies with a likely range today of 0.7190 to 0.7260. Sell rallies.
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