New York Forex Report: The’Dot Plot’ Thickens

New York Forex Report: The’Dot Plot’ Thickens

New York Forex Report: The Fed is fully expected to increase its policy rate by 25bps today, moving the target range up to 1.50-1.75%. Unless they surprise the market, greater focus will be on the outlook. Hedgers and speculators these days plot their trades on the “dot plot” and forward guidance. With the previous more dovish Yellen and the seemingly more upbeat Chair Powell, the market is looking to see if there is a more hawkish shift in the “dot plot”. While it is unlikely this will change the expectations of three hikes this year, the longer dated profile may shift. Chair Powell, in his testimony, also suggested that for him the economy had strengthened since December, but there needed to be sustained signs of wage growth. The latest US labour market report showed wage growth pull back, with other data a little mixed too. That said, employment clearly remains strong. The Fed’s assessment of this will be listened to closely, especially as the market’s expectations have shifted more towards four hikes this year. FED Watchers believe US yields will continue to work higher over the long term, but US 10-year yields remain trapped in a well defined range under the well-known 3.00-3.05% resistance region. The broader USD remains in a similar range process at the moment.

NORTH AMERICA The key event for the US is the March Federal Open Market Committee meeting (FOMC). A March rate hike is fully priced in and the focus will be on the dot plot and Powell’s first post-FOMC press conference as the new Fed chief, specifically to see if there is explicit guidance to move 2018 rate expectations from 3 to 4 hikes.

EUROPE Sentiments in the Eurozone tumbled in March, according to the ZEW Survey Expectations registered a reading of 13.4 in March (Feb: 29.3), the lowest recorded reading since Oct-16. In a similar survey, Germany investor confidence was shaken as well as sentiment fell tremendously to 5.1 (Feb: 17.8) in part due to concerns of an impending trade war. The steel sector slid to -23.3 in March (Feb: +21.7). In a separate release, consumer confidence was sustained at 0.1 in the same month (Feb: +0.1). In the UK, a flurry of inflation-related data fell short of expectations sending the pound tumbling and further reaffirmed views that the BOE will hold its interest rate steady for the upcoming monetary policy meeting this week. Headline CPI softened more than expected to increase 2.7% YoY in February (Jan: +3.0%) while the gain in producer prices eased to 3.6% YoY (Jan: +4.0%). Producer prices also recorded a slower growth of 2.6% YoY (Jan: +2.8%). Investors are pricing in a 54.2% of rate hike in May. The pound recovered shortly but still closed slightly lower against the dollar.

ASIA Japan’s coincident index fell the most in 10 months to 114.9 in January (Dec: 119.7) while its leading index dropped to 105.6 in the same month (Dec: 106.8). In a separate release, machine tool orders for February was confirmed to be growing 39.5% (Jan: +48.8%). Convenience stores sales on the other hand showed a slight pick-up to increase 0.3% YoY (Jan: +0.1%). BOJ Governor Kuroda who was speaking at the sidelines of G20 Finance ministers meeting in Buenos Aires, Argentina (20 Mar) said the Fed or any other central bank will undoubtedly normalise monetary policy if their economies are in good shape and they achieve their price targets. He does not think central bank policy normalisation will have direct negative impact on global growth but he added that G20 has continued to advise central banks to be mindful of impact their policies could have on emerging markets

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

Technical: 1-3 Day View – Range continues contracting frustrating both sides, yesterdays close below 1.2250 opens 1.2150, however another whipsaw and close above 1.2360 sets 1.2570 in bullish sites

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: Neutral
Trading Take-away: Neutral

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

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

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: Bullish
Trading Take-away: Short