Low volatility ahead of the FOMC Meeting

Nikolas Papas

Nikolas has been involved in the finance industry for over fifteen years spanning across Europe and USA with a depth of knowledge and experience within many aspects of the financial markets. Nikolas gained several years experience with some of the Europe’s leading Brokers, as equity analyst, and trader managing accounts for both Private and Corporate Investors. He enjoys both the fundamental and technical aspects of trading focusing on stock markets and all FX majors. Currently Nikolas provides analysis and comments to online financial publications. Educational background in Economics (BSc), and Finance (MSc).

yearly low

Low volatility ahead of the FOMC Meeting

March 20, 2019

Asia stocks finished flat today as traders await the U.S. Federal Reserve meeting later during the US session. Media reports have suggested that progress in relation to China-US trade negotiations have been stymied with the Chinese unwilling to yield to US demands. In Japan, the Nikkei225 main index added 0.20 percent to 21,608 and the Hang Seng benchmark in Hong Kong finished 0.32 percent lower at 29,368.

The Shanghai Composite finished 0.01 percent lower at 3,090, while stocks in Australia fell for the second day on Wednesday. The ASX 200 opened the session down 2 points and was down 29 points at the worst levels of the morning. An early afternoon rally was ultimately met with selling, which saw the index ending with a loss of 19 points or 0.3% to 6,165.

In commodities markets, Light Crude Oil keeps the positive momentum close to four-month high, trading at 59.29. Brent oil is trading unchanged at $67.80/barrel just shy from highs at 68. With OPEC’s cuts being adhered to by its members, 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 is lower 2 dollars around $1303 searching for a catalyst to start a new move. XAUUSD may find support at $1297 where the 50-day moving average crosses, ahead of testing the 100-day simple moving average down to $1293.

A cautious start for equities in the early European session mirroring the sentiment seen in US equity futures, with investors watching the developments surrounding Brexit, and an eye on FED decision later today, DAX30 is underperforming, giving up 0.61 percent to 11,714, CAC40 is 0.02 percent higher at 5,428 while FTSE100 in London is 0.09 higher at 7,329. Any delay to the Brexit process will now need to be agreed by the other 27 EU members, with talks about possible conditions for an extension to be held before this week’s EU summit

On the Lookout: The Federal Reserve will conclude its two-day policy (FOMC) meeting today. It will issue its rate decision, FOMC statement and Projection Materials at 18:00GMT. The Fed has raised rates four times in 2018 and three times in 2017. Although we do not expect any change in rates, traders will keep a close eye on the policy statement, with remarks from FED chairman Jerome Powell at his news conference being of particular note. In December, the Fed updated their dot plot to project two rate hikes in 2019, but this is widely expected to change today.

The Japanese government earlier today downgraded its view of the economy for the first time since 2016, citing recent weakness in exports and industrial production.

Trading Perspective: In forex markets, the Aussie dollar is offered today down to 0.7080 amid downbeat Australian housing data and neutral RBA. The pair is extending this week’s retracement slide from over two-week tops above 0.71. The Kiwi is underperforming trading 20 pips lower to 0.6830 as the US dollar index gains momentum trading at 95.97, rebounding from the three weeks low.  

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GBPUSD Hourly (H1) Chart

GBPUSD is trading 40 pips lower today breaking below the recent trading range between 1.3242 and 1.3282; the bull trend is still intact as volatility fades away and the traders closely watching the developments around Brexit votes and rumors. The technical picture is bullish for GBPUSD and a second attempt today at 1.33 looks possible. One concern today is the move below the 1.3250 zone which might attract some offers down to 1.32. On the downside, major support will be found at 1.3042 which crosses the 50-day moving average while more protection can be found at the 200-day moving average around 1.2985. On the flip side, major resistance can be found at 1.3325 where the hourly moving averages stand and then at 1.3382 the yearly high will be met with strong supply.

A delay in the Brexit process with almost two more years of uncertainty and postponed business decisions and investments will be extremely damaging to the UK economy, which is a Sterling negative scenario.

In GBP futures markets the open interest increased by just 492 contracts on Tuesday from the previous session. Volume, instead, dropped for yet another session, this time by around 23.8K contracts.

EURUSD corrects today below 1.1340 breaching the 50-hour moving average after rejected yesterday at 1.1360. The pair will find immediate resistance at the 50-day moving average at 1.1363 and is looking to break above in order to establish a new bullish trend targeting 1.14. The low from the previous Thursday session at 1.1277 provides solid support if the pair manages to break the 1.13 round figure.

It is worth mentioning that traders keep pricing in the first ECB rate hike at some point in H2 2020.

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 added nearly 4.5K contracts to their open interest positions on Tuesday from Monday’s final 537,986 contracts. On the other hand, volume shrunk for the fourth session in a row, this time by almost 17K contracts.

USDJPY rebounds in the early European session, adding 22 pips to 111.60, breaking above the 50-hour moving average. Resistance for the pair stands at 112 round figure while support can be found at the low from yesterday at 111.25 while more solid bids can be found at the 111 zone.

In Yen futures markets, the open interest in JPY futures markets rose by more than 2.1K contracts on Tuesday, recording the second build in a row. In the same line, volume reverted two consecutive drops and went up by around 19.7K contracts.

USDJPY Hourly (H1) Chart

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