Today at 19:00 (GMT) the FOMC is to announce its interest rate decision and is widely expected to remain on hold at +2.5%. Fed’s Funds Futures implied yesterday, that the market had fully priced in the possibility of the bank remaining on hold. Hence we could see the market’s attention turning to the accompanying statement and the following press conference (19:30 GMT) of the Fed’s Chair J. Powell. We could see the FOMC acknowledging the growing risks to the US economy as the global momentum seems to be weakening, maintaining a more dovish tone in the accompanying statement, which is our base scenario. On the other hand should the bank find the recent softer US financial data of a more temporary nature, we could see it maintaining a more balanced tone. Also during the following press conference we could see Fed Chair J. Powell implying a change in the FOMC’s stance from gradual rate hikes towards a more wait and see position. Should there be dovish comments, which exceed the market’s expectations, we could see the USD weakening across the board and vice versa. USD/JPY maintain a rather tight range bound movement yesterday, testing the 109.20 (S1) support line. We maintain the view for a sideways movement, however it should be noted that should the FOMC interest rate decision today, be substantially dovish, we could see the pair dropping. Should the pair come under the selling interest of the market, we could see its price action breaking the 109.20 (S1) support line and aim for the 108.25 (S2) support level. On the flip side, should the market favour the pair’s long positions be favoured by the market, we could see it aiming if not breaking the 110.15 (R1) resistance line.
Pound drops on growing Brexit uncertainty
The UK parliament yesterday, decided not to extent article 50 and the Brexit exit date, however voted against a hard Brexit albeit the vote is not binding for the UK government. On the other hand it also decided to scrap the Irish backstop from the deal, providing a clear message to Brussels as Theresa May asked. The next steps of the Brexit drama, include Theresa May heading back to Brussels in order to replace the Irish backstop with alternate means, or at least a serious redrafting of the clause. The EU was quick to reply that the withdrawal deal is not open for renegotiation, which could be indicative of the EU digging in to their positions. We could see volatility rising again for the pound as uncertainty rose again and new Brexit headlines could affect the sterling on either direction. Cable dropped yesterday and tested the 1.3070 (S1) support line, however did not clearly break it. Technically as the pair has broken the upward trendline incepted since the 21st of January, we switch our bullish outlook for a range bound movement. However we maintain reservations for the pair’s direction as it may prove sensitive to any further Brexit headlines, reeling in. Should the bulls take over, the pair could break the 1.3175 (R1) resistance line and hover above it. Should the bears dictate the pair’s direction once again, we could see its price action breaking the 1.3070 (S1) support line and aim if not break for the 1.2960 (S2) support level.
Today’s other economic highlights
In today’s European session, we get from France the preliminary GDP for Q4, from Germany the GfK consumer Sentiment indicator for February as well as the preliminary HICP rate for January and from the Eurozone the Industrial and Economic Sentiment indicators for January. In the American session, we get form the US the ADP National employment figure for January, the preliminary GDP growth rate for Q4 and the EIA crude oil inventories figure.
Support: 1.3070 (S1), 1.2960 (S2), 1.2830 (S3)
Resistance: 1.3175 (R1), 1.3280 (R2), 1.3365 (R3)
Support: 109.20 (S1), 108.25 (S2), 107.40 (S3)
Resistance: 110.15 (R1), 111.40 (R2), 112.55 (R3)