As we head into another trading week the in main news over the weekend that is likely to affect the currency markets.
Merkel position has been undermined by the poor performance in regional elections.
Chinese data came in weaker than expected on Saturday
Finland being downgraded from its AAA status
Early Market Moves
There were no real gaps to speak of on the majors but in the early market Aussie has moved up and is currently setting at 0.7575, pushing toward the 0.7600 level, the highest it has been since July last year.
Not much happening so far on Euro or Cable but most experts are suggesting that they are likely to continue their bullish end to last week.
The counter intuitive reaction sends a bullish signal for the outlook for the euro in the near-term. EUR/USD may now attempt to retest the top of its rough trading range over the last year moving closer to the 1.1500-level.
Bank of Tokyo-Mitsubishi UFJ
We look for further strength towards gap and 78.6% retracement resistance spanning from 1.1230 to 1.1256/59…Above here can then target the February high at 1.1376 where we would expect fresh selling to show. Immediate support moves towards 1.1136, with the top of the base at 1.1068/58 ideally holding,
Before the weekend it was trading at its best level since February 19. It broke the downtrend drawn off the February 4 high with two successive closes above it to end the week. The technical indicators are constructive. Sterling can test $1.4500-$1.4540 in the days ahead. Support is seen ahead of $1.4250.
Brown Brothers Harriman
Current Market Sentiment Poll
Major events this week include the BOJ, FOMC and BoE meeting all have the potential of moving the markets but obviously FOMC is the big one. What can we expect?
First, there is a likely to still be a sense of caution hanging over the meeting, helping to justify why the Fed did not hike. The sharp tightening of financial conditions has started to ease and market nervousness over the global growth backdrop has abated, but we expect the FOMC statement will continue to state that the Committee is still closely monitoring global developments and will not reintroduce a balance of risks assessment. Similarly, uncertainty about the near-term inflation outlook – notably a drop in oil prices and inflation expectations, but a strong set of inflation data prints for February – also is likely to keep the Fed cautiously on hold for now.
Second, we look for some signs of optimism in the discussion of the outlook going forward, supporting additional hikes later this year. We expect the updated dot plot will show a median three hikes for this year (with a number at two hikes) and four for 2017. In this sense, not hiking in March is similar to last September’s “tactical delay” of liftoff. The opening paragraph of the statement and Yellen’s subsequent comments should note that the US data recently have shown improvement on net. April should remain a “live” meeting – likely noted by Yellen in her press conference.
Third, we do not expect significant changes to the Summary of Economic Projections (SEP), in line with a “tactical delay.” There may be some tweaking of the near-term forecasts: we see some chance of slightly lower 2016 GDP growth; a smaller chance of a slight upward revision to 2016 inflation rates. However, we see a high likelihood that the median long-run dot will decline to 3.25% and a good chance that the central tendency for the longer-run GDP growth rate will come down modestly, reflecting disappointing productivity growth over the past few years. We also see some chance that the longer-run unemployment rate projection could move slightly lower.
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