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'We do not think much will change throughout much of Wednesday ahead of the Fed rate decision and policy statement.' – Edward Meri, INTL FCStone (based on Reuters)

Pair's Outlook

During the early hours of Wednesday's trading session the yellow metal's price fluctuated near the 1,200 mark. This tendency was established already on Tuesday morning, as the markets are expecting the Federal Reserve to announce its rate decision. The markets are expecting the Fed to hike the rate by 0.25%, and that would cause the US Dollar to strengthen, which would force the metal's price to fall. From a technical analysis perspective the commodity price is already positioned to fall down to the 1,186.87 level, where the closest support is located at.

Traders' Sentiment

Traders have not changed their opinion at all, as 52% of open positions remain long, and 69% of trader set up orders are set to buy the metal.

USD/CHF - 1.0083

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 1.0085

Kijun-Sen level                    : 1.0089

Ichimoku cloud top                 : 1.0101

Ichimoku cloud bottom              : 1.0084

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the greenback has retreated after meeting resistance at 1.0109 and mild downside bias is seen for test of 1.0060 support, however, break there is needed to signal the fall from 1.0171 top has resumed and extend weakness to 1.0035-40 but support at 1.0009 should remain intact, risk from there has increased for a rebound to take place later.

On the upside, above said resistance at 1.0109 would bring rebound to 1.0120 but break of resistance at 1.0142 is needed to signal low is formed and suggest the fall from 1.0171 has ended, bring another rise towards this level later. As near term outlook is still mixed, would be prudent to stand aside in the meantime.

The Euro is slightly bid on Wednesday, following past two days in red. Pullback from 1.0713 high was so far contained bat strong 1.0600 support zone (daily cloud base) where daily Tenkan-sen / Kijun-sen bull cross is forming.

Technical studies are mixed with no clear direction while the pair is holding within 1.0600/50 range (span of daily Ichimoku cloud with cloud top reinforced by falling 100SMA).

Markets are awaiting Fed, with rate hike being widely expected, but focus goes towards Yellen's press conference, to get more hints about central bank's next steps. Another event today that would influence single currency's performance is elections in Netherlands.

Res: 1.0653, 1.0678, 1.0700, 1.0748
Sup: 1.0603, 1.0577, 1.0545, 1.0524

Advance guidance has the desired effect

All the fun has been taken out of trading in the recent past as 'advance guidance' a relatively new phenomenon that is used by both the BoE Governor and Fed Chair defuse the speculation surrounding monetary policy meetings.

Fundamental traders, those who trade based upon economic data and political developments see a vastly reduced opportunity to speculate and tech guys who use charts in the manner of alchemist, poring over graphical representations of currency markets must deal with ever narrowing ranges. As an illustration, the single currency has traded in a 1.0400/1.0800 range since November 2016.

It must be remembered before tauper finally sets in that these are the type of markets ripe for a 'flash crash' should there be a withdrawal of liquidity if a Black Swan event were to occur. It is the nature of a black swan that it is something impossible to predict but the following are some events that I have culled from several published lists (in no particular order):

• China free floats the Yuan
• Another Brexit style departure from the EU
• Inflation in Japan
• Turkey and Russia enter armed conflict
• Iran and Saudi Arabia fight more than a 'proxy war'
• A nuclear or chemical terrorist attack with thousands of casualties

Black Swan lists are overtaking dead pools as traders 'diversion of choice' as years come to an end. The seriousness of these events varies but the effect on markets could be devastating

Today's rate hike by the FOMC is such a case. Janet Yellen has been at pains to explain just what the Fed is looking for to hike rates and traders can join the dots of data releases and determine for themselves that those conditions have been met.

What is a little trickier is determining what the FOMC's longer term stance is and there is no advance guidance for that which means that not only can traders speculate they can also take positions based on their own, unencumbered, views.

It was generally assumed at the start of the year that the Fed had a 'three hike' strategy but they will have hiked twice in the first quarter in addition to which President Trump's promised (but so far undelivered) stimulus is still to come.

Politics makes a comeback.

Following a recent lull in activity, political matters are set to return and provide a driver for the market.

Since his bizarre wire-tapping accusations, President Trump has kept a low (very low for him) profile. It is the nature of the beast that this cannot continue and he is likely to 'break the shackles' and pronounce on currency manipulation, the performance of the Fed, the building of the wall, or some other issue where he feels stomping down with his size ten would be a Presidential action.

The Dutch go to the polls today with the spat with Turkey resonating across Europe. With such a right-wing opponent standing against him with an 'anti-everything that isn't Dutch platform, Prime Minister Mark Rutte has uncovered a tough side in dealing with the rhetoric of Turkish President Tayyip Erdogan.

The Brexit Bill has finally passed through parliament and will allow Prime Minister May to trigger Article 50 and start the process. Since this is an unprecedented event, market reaction will be interesting. There are very few events that are so 'emotional' and trader's reaction driven by their own feelings about the EU will cloud judgements and produce wholly unpredictable results.

France is voting for a new President on 23rd April with a final runoff on May 7th. It is notable that many newspaper and web-based articles have sprung up questioning just how Right Wing National Front Candidate Marine le Pen really is. Whether it is her opponents trying to defuse populist/ nationalist sentiment or her own supporters trying to show she is more electable the whole process will be played out over the next six weeks providing gyrations for the single currency which are unlikely to break the 'well-trod path' of his year's ranges.

Germans and Italians will look on with interest since there is an election in Germany this September as well as the possibility the Italian Prime Minister may call an election if he sees no way out of the constitutional crisis that continues to pervade Italian politics.

GBP/USD - 1.2229

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2206

Kijun-Sen level                    : 1.2183

Ichimoku cloud top              : 1.2195

Ichimoku cloud bottom        : 1.2183

New strategy  :

Buy at 1.2155, Target: 1.2255, Stop: 12120

Position : -

Target :  -

Stop : -

Although cable resumed recent decline and extend weakness to 1.2109 yesterday, the subsequent rebound suggests low is possibly formed there and consolidation with upside bias is seen for gain to 1.2260-65, above there would add credence to this view, bring retracement of recent decline to 1.2290-95 (50% Fibonacci retracement of 1.2479-1.2109), however, resistance at 1.2301 should limit upside and price should falter below 1.2335-40 (61.8% Fibonacci retracement), bring another decline later.

In  view of this, we are looking to buy cable on dips. Only below said support at 1.2109 would extend recent decline to 1.2090, however, loss of downward momentum should prevent sharp fall below 1.2070 and reckon 1.2040-50 would hold from here, sterling may stage another rebound from there later.

EUR/USD - 1.0637

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.0623

Kijun-Sen level                  : 1.0632

Ichimoku cloud top             : 1.0666

Ichimoku cloud bottom      : 1.0651

Original strategy  :

Bought at 1.0640, stopped at 1.0610

Position : - Long at 1.0640

Target :  -

Stop : - 1.0610

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the single currency slipped to as low as 1.0600, as euro found good support there and has rebounded again, suggesting consolidation above this level would be seen and gain to 1.0660-65 cannot be ruled out, however, break there is needed to signal low is formed, bring further gain to 1.0680-85 but price should falter below this week’s high at 1.0714.

On the downside, below said support at 1.0600 would signal top has been formed at 1.0714 and downside risk remains for the fall from there to bring retracement of recent rise to 1.0570-75, then 1.0550 but reckon downside would be limited and support at 1.0525 should remain intact. As near term outlook is mixed, would be prudent to stand aside in the meantime.

Sunrise Market Commentary

• Rates: Higher dots, higher US yields?
  The US 5-yr, 10-yr and 30-yr yield arrived at key technical resistance levels ahead of the FOMC meeting. A rate hike is discounted and markets will be sensitive to the Fed's intentions in the remainder of the year. Higher dots in 2018 & 2019 are likely, but will the central bank surprise by indicating to step up its tightening pace already this year?
• Currencies: Will Fed give a strong enough message to kick-start new USD rally?
  Yesterday, the dollar showed a mixed picture. EUR/USD reversed the post-payrolls rebound going into today's Fed meeting. The Fed dots indicating four rate hikes this year would be USD supportive, but this scenario is not that evident. So, the bar for the dollar to already start a new sustained up-leg might be rather high

The Sunrise Headlines

• US equities corrected around 0.33% lower yesterday as the countdown to tonight's FOMC meeting continues. Overnight, Asian stock markets trade near opening levels.
• The French prosecutor starts an inquiry which focuses on whether Business France, a government agency, was guilty of favouritism in organizing a Las Vegas trip for Emmanuel Macron, who was then economy minister.
• Most major Japanese companies offered the lowest hike in base pay in four years. Japan's annual "shunto" spring wage increases are a barometer of corporate confidence and of whether consumer spending can get a boost.
• Today's Dutch election should serve as a bellwether for upcoming votes in France and Germany. Wilders' Freedom Party trails PM Rutte's Liberals in surveys. The exit polls are expected after voting closes at 9 pm local time.
• China's Premier Li Keqiang said that Beijing does not want to see a trade war with the US and urged talks between both sides to achieve common ground.
• Saudi Arabia, the world's biggest oil exporter, moved to allay fears that the kingdom was backing away from its pledge to curb production, underlining its concern about a 10% plunge in the crude price over the past week.
• Today's eco calendar contains UK labour market data, US Empire Manufacturing, CPI and retail sales. However, focus turns to the FOMC meeting. The German Finanzagentur holds a 30-yr Bund auction.

Currencies: Will Fed Give A Strong Enough Message To Kick-Start New USD Rally?

FOMC to decide on next directional USD move?

There was no clear driver for USD trading yesterday, as investors counted down to today's FOMC decision. EUR/USD drifted south in the 1.06 big figure. Brexit and EMU political uncertainty probably weighed on the euro. USD/JPY was well bid early in the session, but failed to sustain north of 115 as risk sentiment eased. EUR/USD finished the session at 1.0604 (from 1.0653). USD/JPY closed at 114.75 (from 114.88).

Overnight, Asian equities show minimal losses, in line with the US yesterday. Chinese officials stressed that the are trying hard to avoid a trade war and repeated they intend to keep the yuan stable. EUR/USD stabilizes in the 1.0615/20 area. The rise in the oil price yesterday eve and minimal Asian equity losses help USD/JPY to stay off yesterday's intraday low. The pair is trading the 114.80 area.

Today, there are plenty of US eco data. Fed will announce its policy decision and markets will keep an eye at the Dutch election . The outcome of the latter will only be available early tomorrow. So, no impact on FX trading today. Regarding the FOMC, a rate hike is fully discounted. Markets' attention will go to the press conference and the economic and rate projections. We raised our rate expectations to four rate hikes this year, but we doubt this will already be seen in the median 2017 rate projection . It is more likely that the 2018/2019 median rate projection will be raised. Regarding the US data, headline CPI might hit a new high at 2.7% Y/Y, mostly due to base effects. Core CPI is expected to be up 0.2% M/M, but this might result in a 0.1%-point decline to 2.2% Y/Y. Risks might be on the upside. February retail sales are expected to have increased only 0.1% M/M and 0.2% M/M respectively for headline and core measures following strength in January. Gasoline sales (price effect) was a negative factor. Also here small upside risks. Yesterday, the dollar found a better bid after a disappointing post-Payrolls performance. The data are interesting, but big deviations from consensus are needed to trigger a directional move in the dollar ahead of the Fed. The dollar might be most sensitive for an unexpected rise of inflation. A rise in core yields due to higher oil prices might also be slightly USD supportive. The Dots raising the expected 2017 rate median rate hike expectation from 3 to 4 would support further USD gains. However, this scenario is not that evident. In case of higher rate expectations only for 2018/2019, the reaction of the dollar might be modest. We maintain a cautiously USD positive view going into the Fed policy decision. Even so, it won't be easy for the dollar to break the next key resistance levels

(EUR/USD 1.0494; USD/JPY 115.62) without additional positive fiscal or economic news (especially higher price data). A sell EUR/USD on upticks remains favoured, even as we have to admit that the USD/EUR momentum isn't convincing. At the same time, the dollar still enjoys the supported of a massive interest rate differential, discouraging USD short positions.

EUR/USD: Post-Payrolls USD setback reversed ahead of the FOMC decision

EUR/GBP

Sterling hovering up and down as Brexit start looms

On Tuesday, sterling was quite aggressively sold early in the session. Asian investors reacted to the Scottish PM Sturgeon initiative to start the procedure for a new ‘indiref' and to the parliamentary final go to trigger the ‘real' start of the Brexit procedure. Sterling set intraday lows against the dollar (1.2110 area) and the euro (0.8787 area) very early in European trading. Some consolidation and even a gradual intraday rebound kicked in. At the end of the day, sterling was little changed. EUR/GBP finished at 0.8726 (from 0.8719). Cable closed at 1.2153 from 1.2219, but this move largely mirrored the intraday rebound of the dollar.

This morning, sterling shows again some wild swings going in the close of the Asian markets. This time, sterling is captured by some short-squeeze in thin trading conditions, pushing the UK currency higher. We see no hard news to explain the move. There are headlines that the EU might delay the real start of the Brexit negotiations till June. Such a scenario is UK/sterling negative. Later today, the UK labour data will be published. Of late, momentum in the labour market eased a bit, but the overall picture remained constructive. We don't have strong reasons to distance ourselves from the consensus, but softer data might reinforce the BOE wait-and-see approach: a mildly negative for sterling. However, the focus will be on the Brexit debate and on any fall-out from the FOMC decision. Sterling sentiment softened of late. EUR/GBP cleared the 0.8592 resistance, which improved the technical short-term EUR/GBP picture. We don't expect a sustained EUR/USD rebound , but a combination of temporary euro consolidation and ongoing sterling softness as the Brexit negotiations are nearing, might trigger some more ST EUR/GBP gains. The 0.8854 correction top is the next key resistance. The nervous swings over the previous days suggest that a clear break beyond 0.8854 will be difficult without important news.

EUR/GBP; sterling shows some nervous swings as formal start of Brexit procedure is nearing

Download entire Sunrise Market Commentary

USD/JPY - 114.71

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 114.75

Kijun-Sen level                  : 114.86

Ichimoku cloud top             : 115.00

Ichimoku cloud bottom      : 114.86

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

As the greenback met renewed selling interest at 115.20 yesterday and slipped again, retaining our view that further consolidation below last week’s high at 115.51 is in store and risk of another fall to 114.48 support cannot be ruled out, however, reckon downside would be limited to 114.26 support and as this move is viewed as retracement of recent upmove, reckon downside would be limited to 114.00-05 (38.2% Fibonacci retracement of 111.69-115.51) and price should stay well above strong support at 113.56-61), bring rebound later.

In view of this, would be prudent to stand aside for now. A firm break above 115.20 would suggest low is formed, bring a stronger rebound but still reckon said resistance at 115.51 would cap upside. Only break there would revive bullishness and extend recent upmove to previous resistance at 115.62, then towards 115.90-00. 

Market movers today

The main event in the markets today will be the FOMC meeting. A rate hike of 25bp is a done deal, and the market will be looking towards the statement regarding future rate hikes and a possible redaction in its balance sheet.

In Europe, focus is on the Dutch election. Recent polls suggest that Geert Wilders is losing ground to Mark Rutte and that Geert Wilders' party will not be the largest party. This should be supportive for European semi-core yield spreads to Germany

Finally, we have string of data from the US and Swedish inflation survey as the main economic releases today.

Selected market news

The Oil price has risen modestly this morning, while US equity markets posted small losses yesterday. 10Y US Treasury yields fell a few basis points in yesterday's trading session. It has again been a mixed session in the Asian equity markets but with most markets following the negative sentiment from the US equity markets while the markets await the outcome of the FOMC meeting.

Currency pair EUR/USD

The Federal Reserve (Fed) will release its interest rate decision on Wednesday evening 6pm GMT. The major question is whether the FOMC (Federal Open Market Committee) will keep the rate at 0.75% or raise it to 1.0% which would typically lead to USD strength. The FOMC also offer its economic projections and statement. Price action could see increased volatility during and after the announcement.

The bearish price action of the EUR/USD after price reached the 61.8% Fibonacci retracement level of wave 2 (purple) could indicate that the wave 2 has been completed. A break below support (blue) could see price move lower to retest the bottom (green).

The EUR/USD price action is showing lower lows and lower highs which could be part of a new downtrend. The current wave 4 (green) is invalid if price breaks above the 61.8% Fibonacci retracement level. A break below support could spark a bearish breakout within wave 3 (blue/purple).

Currency pair GBP/USD

The GBP/USD broke the support trend line (dotted blue) which restarted the downtrend and continuation within wave 5 (blue). Price has been hesitant to break below the bottom (green) but a 2nd attempt could see price fall towards the Fibonacci targets of wave 5 vs 1+3.

The GBP/USD could be building a wave 4 (orange) correction. The Fibonacci levels of wave 4 (orange) could act as resistance but a break above the 61.8% Fib makes a wave 4 (orange) less likely. A break below the support trend lines (green) could see a downtrend continuation.

Currency pair USD/JPY

The USD/JPY seems to have completed a wave 4 (purple) at a shallow Fibonacci level from the daily-weekly charts, which makes a larger uptrend more likely. The uptrend stays intact if price manages to stay above the bottom of wave 2 (blue).

The USD/JPY could be building a wave 1-2 (orange) but a break below the 100% Fibonacci level invalidates wave 2 (orange).