monetary policy

Post-FOMC Bearish Pressure Surrounds US Dollar

Asian stocks finished mixed on Friday after upbeat data from the US economy, latest optimism surrounding Brexit negotiations and doubts over the US-China trade deal.

In Japan the Nikkei225 main index added 0.09 percent to 21627, the Hang Seng benchmark in Hong Kong finished 0.25 percent lower at 28,989. The Shanghai Composite finished 0.01 percent higher at 3,101 and in Singapore, the FTSE Straits Times index gained 0.02 percent at 3,213. The Aussie stock market managed to make a solid gain today, capping off what’s been a week of choppy and lackluster trade. The ASX 200 rose 28 points or 0.5% to 6,195 – helped by gains in financial, energy, retail, healthcare, IT and utility stocks. The index gained 0.3% for the week.

In commodities markets, Light Crude Oil finally today broke below the $60 mark, and currently trading at 59.92, Brent oil also traded lower to $67.76/barrel as Venezuela and Iran impacting oil supply and cuts set to continue at the June meeting for OPEC. Oil has been steadily bid in recent days. OPEC has already helped oil prices rise by 30% this year as it moves to cut global supplies. Gold in a volatile session from the highs at $1320 went back to $1303 and managed to finish the Asian session at $1311. XAUUSD immediate resistance stands at yesterday high at $1321 while more offers will be found at 1330 zone. The precious metal may find support at $1302 where the 50-day moving average crosses and the low from yesterday, ahead of testing 100-day simple moving average down to $1271.

A negative start for equities in the early European session mirroring the sentiment seen in US equity futures, with investors digesting the FED forecasts and watching the developments surrounding Brexit. DAX30 is giving up 0.50 percent to 11,493, CAC40 underperforming, is 0.67 percent lower at 5,342 while FTSE100 in London is 0.58 lower at 7,310.

On the Lookout: Geopolitical worries resurface as US imposes the first new North Korea sanctions since the failed Hanoi summit, while North Korea demands the US to remove weapons from Guam and Hawaii. Yesterday the US Federal Reserve chairman Jay Powell, surprised by delivering a dramatic shift on monetary policy guidance, helping US stocks to fresh 5-month highs, and the European Union agreed to give May two weeks’ Brexit extension. The Bank of England kept its interest rates unchanged at 0.75%, and the vote was unanimous. The forward guidance was left untouched as well.

In central Bank announcements today, the speeches by the ECB Governing Council members De Guindos and Mersch will grab attention at 08:15GMT and 10:15GMT respectively. At 12:00GMT, the GBP traders will await the BOE quarterly economic bulletin.

In Americas macro calendar, we have the Canadian retail sales and CPI figures slated for release at 1230 GMT, followed by Markit flash manufacturing and services PMI readings due at 13:45GMT. At 14:00GMT, the US existing homes sales data will be published alongside the wholesale inventories report. Next of relevance remains the Baker Hughes US oil rigs count data that will be released at 17:00GMT, an hour ahead of the US monthly budget statement release. Next week, US economic growth and inflation measures are the key data releases of interest.

Interest rates Market expectations: For the Fed, markets don’t expect any further rate hike in 2019, down from two rate hikes previously, and now see only one hike in 2020. Traders keep pricing in the first ECB rate hike at some point in H2 2020.

Trading Perspective: In forex markets, AUDUSD consolidates around 0.71 after the spike above 71.65 US cents, following Greenback weakness on the dovish US Fed and an unexpected dip in the Aussie unemployment rate, which fell to 4.9% in February – the lowest level since June 2011. Australian dollar is now trading to 71.08, amid pressure over China anti-dumping duties and the US sanctions on North Korea, the Kiwi, managed to rebound from yesterday correction to 0.6895 on repositioning ahead of the RBNZ monetary policy decision next week. US dollar index is adding 20 pips at 95.72 as the Fed maintained interest rates at 2.25%-2.5% while adjusting their “dot plot” with a further rate hike in 2019 unlikely, down from two rate hikes previously, and only one hike in 2020.

GBPUSD managed to keep its recovery mode intact after the European Union agreed to give May two weeks’ Brexit extension. The short term technical picture has turned bearish for Sterling as the pair failed to materialize USD weakness and drop below the hourly moving averages. On the downside, major support will be found at 1.3057 where cross the 50-day moving average while more protection can be found at 200-day moving average around 1.2982. On the flip side, major resistance can be found at 1.3167 where the 50 hourly moving average stands and then at 1.3232 the cross point of 100 and 200-hourly moving averages while 1.3382 the yearly high will be met with strong supply.

In GBP futures markets the open interest rose by almost 4.4K contracts on Thursday from the previous day. The volume rose for the second session in a row, this time by more than 39K contracts.

EURUSD Daily Chart

EURUSD lost yesterday all the pips that gained after the FED decision and as of the time of writing the pair is trading 0.11 percent higher at 1.1387. Euro will find immediate resistance at the 200-day moving average at 1.1481 and is looking to break above in order to establish a new bullish trend targeting the yearly high at 1.1570. The low from yesterday session at 1.1342 provides solid support, and further protection can be met at the horizontal support line at 1.1236.

On the Euro political front, headwinds are expected to emerge in light of the upcoming EU parliamentary elections, where the focus of attention will be on the potential increase of the populist and right-wing option among voters.

In Euro future markets, traders scaled back their open interest positions by nearly 7.9K contracts on Thursday from Wednesday’s final 493,906 contracts. On the other hand, volume increased by almost 26.5K contracts.

USDJPY rebounds from yesterday losses up to 110,80 as the pair tested the critical 50-day moving average at 110.31. The next major support for the pair stands at 110 round figure. Immediate resistance for the pair stands at 111 round mark followed by 111.28 where the 100-day moving average stands.

USDJPY Daily Chart