New York Forex Report: Markets Position For Yellen

New York Forex Report: Markets Position For Yellen

New York Forex Report: The USD retains a firm undertone, supported by a strengthening conviction in the market that the Fed is poised to tighten policy later this month and by the resulting rise in short-term US interest rates. US 2Y bond yields rose to a marginal new high a little above 1.30% earlier, the highest yield since 2009. Fed Gov. Brainard, a prominent policy dove, fell in line with her hawkish colleagues last night, stating that it would be appropriate to tighten policy “soon”, whilst expressing reservations about the impact of a rising USD on investment. Fed fund futures are reflecting an 88% probability that the Fed will raise its target rate 25bps on March 15, a virtual certainty after having started the week pricing the risk of a hike as an outside chance at best. The USD is broadly higher as a consequence, with the USD Index regaining the 102 level, last seen in January. Commodities are struggling with the strength in the USD; energy prices are down sharply on the day while precious metals are weaker. The AUD is a notable under-performer on the day, reflecting broader softness in commodities as well as weaker than expected trade data (+AUD1.3bn in Jan versus +AUD3.8bn expected). Markets have a relatively quiet day ahead in terms of data; focus is likely to remain on US rates policy ahead of Chair Yellen’s remarks tomorrow which markets will expect to endorse the major shift in thinking on the policy outlook this week.

FX Majors: EUR In the Eurozone, PMI manufacturing index rose to a near six year high. GBP Theresa May’s government suffered a setback in the progress of the Brexit bill after the House of Lords voted 358 to 256 to make an amendment to the bill. It now requires the government to publish proposals on how to protect EU citizens currently living in Britain within three months of triggering Article 50. JPY widening in the 2Y U.S.-Japan spread toward 155bpts at levels last seen in 2008, indicate that the central bank policy divergence is driving the weakening in the JPY.

EURUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: Expected retest of 1.0521 base plays out forming interim double bottom, a closing breach opens a move to 1.0450 next, only over 1.0650 arrests near term bearish bias.

Retail Sentiment: Bullish
Trading Take-away: Short

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: Price has broken recent range support as 1.24 caps upside corrections a test of 1.22 becomes the next downside objective, only over 1.2470 suggest false downside break and return to recent range
Retail Sentiment: Bullish
Trading Take-away: Short

USDJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: Near term resistance sited at 113.80 removed and now becomes near term support, a close over 114.50 reasserts upside targets primarily at 115.50
Retail Sentiment: Bearish
Trading Take-away: Long

EURJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: Near term resistance sited at 120.50 under pressure, only a close over 121.50 stems near term selling pressure and resets focus on upside objective. Near term support is sited at 119.60
Retail Sentiment: Bearish
Trading Take-away: Long

Commodities FX: GOLD fell to a one week low of 1,237.01 by early NY session as the dollar surged but pared losses subsequently to finish little changed at 1,249.69. OIL settled 0.3% lower to $53.82 per barrel after the weekly EIA report showed U.S. crude stockpiles rose 1.5 million barrels last week to touch a record high at 520.2 million barrels. AUD Australia’s trade surplus dropped to AUD 1.3 billion in January (December: AUD 3.3 billion) due to the 2.90% drop in exports coupled with the 3.70% increase in imports. On the other hand, building approvals climbed 1.80% MoM in January which reversed the 1.20% MoM contraction in December. CAD Bank of Canada (BOC) kept its interest rates on hold at 0.50% as widely expected. The central bank cited “significant uncertainties” weighing on its outlook with exports continuing to face competitiveness challenges.

AUDUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: The next upside objective is sited at .7750 as price continues to consolidate at elevated levels. Near term support is sited at symmetry swing level .7600 ahead of pivotal .7449
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDCAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: Breach of 1.3210 opens anticipated move back to test 1.3370 as 1.32 supports bulls target the symmetry swing objective sited at 1.3480.Price action remains erratic as price attempts to base above pivotal 1.30.
Retail Sentiment: Bearish
Trading Take-away: Long

XAUUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: As 1225 acts as support bulls target symmetry swing resistance sited at 1299, only a close below 1215 concerns near term bullish bias.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USOIL
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: Rejection from equality objective area at 55.30, a close below symmetry support at 50.68 confirms a medium term high and opens a retest of pivotal 49.00. Near term resistance is sited at 54.50.
Retail Sentiment: Bearish
Trading Take-away: Long

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