Dollar's decline extended overnight after Fed left interest rates unchanged as widely expected. The dollar index reaches as low as 99.42 so far is is pressing 99.43 key near term support level. Markets continued to pare back expectation on Fed higher. Fed fund futures are pricing in 17.7% chance of March hike an 69.0% only. Nonetheless, treasury yield was steady with 10 year yield closed up 0.023 to 2.474. Stocks also stabilized with DJIA closed up slightly by 26.85 pts, or 0.14%, at 19890.94. S&P 500 rose 0.68 pts, or 0.03%, to close at 2279.55. In the currency markets, Dollar remains the weakest major currency this week. On the other hand Yen stays the strongest , followed closely by Aussie and Loonie. In other markets, Gold rides on Dollar weakness and surges to as high as 1210.2 so far today, and is set to take on 1220.1 resistance. WTI crude oil stays in familiar range and hovers around 53.5.

FOMC voted unanimously to leave its policy rate within a target range of 0.50-0.75%. The outcome had been widely anticipated as the Fed just adopted rate hike of 25 bps in December. Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the federal fund rate'. Fed's view on the economic outlook has not changed, with overall growth remaining 'moderate' and the balance of risks 'roughly balanced'. The focus will now turn to Chair Yellen's Congressional testimony on February 14-15. During the 1.5 week period, we would receive the employment report for January. More in Fed Upbeat About Employment, Next Rate Hike Data Dependent.

BoE "Super Thursday" is the main focus today. The central bank is expected to keep interest rate unchanged at 0.25% and hold asset purchase target at GBP 435b. This key focus in on the quarterly inflation report. It's widely expected that BoE would raise inflation forecast, and thus, add to the case to stand pat for the rest of the year. However, policymaker's view on the impact of Brexit to growth is still quite unclear. And the markets would hope to get some more hints on that from the latest projections. Meanwhile, markets are pricing in 50% of rate hike by the end of this year. most economists expected that BoE would be on hold until mid-2019.

On the data front, Japan monetary base rose 22.6% yoy in January. Australia trade surplus widened to AUD 3.51b in December, building approvals dropped -1.2% mom. Japan consumer confidence rose 0.1 pt to 43.2 in January. Swiss will release retail sales in December. Eurozone will release PPI. UK will release construction PMI. US will release Challenger job cuts, non-farm productivity and jobless claims.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7558; (P) 0.7577; (R1) 0.7603; More...

AUD/USD's rebound from 0.7158 resumed by taking out 0.7608 and reaches as high as 0.7651 so far. Intraday bias is back on the upside for 0.7777 resistance next. At this point, we'd still expect strong resistance from 0.7777/7833 resistance zone to bring near term reversal. On the downside, break of 0.7448 support will indicate that rebound from 0.7510 has completed. That will turn bias to the downside for 0.7144 key support level.

In the bigger picture, AUD/USD is staying inside long term falling channel and it's likely that the down trend from 1.1079 is still in progress. Break of 0.6826 low will confirm this bearish case. We'll be looking for bottoming sign again as it approaches 0.6008 key support level. Meanwhile, sustained break of 0.7833 resistance will be a strong sign of medium term reversal.

Economic Indicators Update

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FOMC voted unanimously to leave its policy rate within a target range of 0.50-0.75%. The outcome had been widely anticipated as the Fed just adopted rate hike of +25 bps in December. Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the federal fund rate'. The market has only priced in 2 rate hikes this year, although the December dot plot signaled there might be 3. CME’s 30-day Fed fund futures suggested a 17.7% chance of rate hike in March, down from 20.3% prior to FOMC meeting. Yet, they priced in a 38.8% chance in May, compared with 37.7% the day before the meeting.

As mentioned in the statement, the Fed noted that 'measures of consumer and business sentiment have improved of late'. This is a positive tweak, appearing for the first time, which indicates policymakers’ acknowledgement of the rise in consumer and business confidence. On the flip side, however, they suggested that 'household spending has continued to rise moderately while business fixed investment has remained soft'.

The Fed is comfortable with the improvement in the employment market. As suggested in the statement, 'the labor market has continued to strengthen. Job gains remained solid and the unemployment rate stayed near its recent low'. On another component of the dual mandate, inflation, the Fed acknowledged that 'inflation increased in recent quarters but is still below the Committee's 2% longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance'.

To conclude, the Fed’s view on the economic outlook has not changed, with overall growth remaining 'moderate' and the balance of risks 'roughly balanced'. The focus will now turn to Chair Yellen’s Congressional testimony on February 14-15. During the 1.5 week period, we would receive the employment report for January

EUR/USD

The EUR/USD pair closed the day marginally lower round 1.0770, not far from a daily high 1.0807 high reached ahead of London's opening, with the dollar maintaining a weak stance and poised to decline further. Majors traded within a well-limited range during the Asian and European sessions, with the pair holding a few pips below the 1.0800 threshold, even despite the EU final Markit Manufacturing PMIs for January which confirmed that growth in the region entered 2017 with a strong footing. The German manufacturing sector growth hit a three-year high in January, despite a modest downward revision to 56.4 from the initial estimate of 56.5, while for the whole region, the final reading was revised higher, up to 55.2 from 55.1 its highest in over six years.

Solid US data pushed the USD higher early US session, as the ADP employment survey came in much better-than-expected, at 246K from previous 153K and market's consensus of 165K, whilst manufacturing PMIs also confirmed an acceleration in growth's pace at the beginning of the year, with official ISM manufacturing PMI up to 56.0 from December's 54.7. As largely expected, the US Federal Reserve monetary policy meeting was a non-event, as the Central Bank left its policy unchanged, and offered no clues on what's next. Still, chances of a March rate hike have diluted after the neutral stance, putting the greenback under pressure across the board.

Technically, the pair is poised to extend its advance, given that in the 4 hours chart, the price bounced from a bullish 20 SMA, around 1.0735, whilst technical indicators recovered their bullish slopes after a modest downward correction within positive territory. The Momentum indicator in the mentioned chart heads higher at fresh weekly highs, supporting additional gains for the upcoming sessions. Still the pair faces a tough resistance between 1.0800 and 1.0840, where it bottomed for most of 2015 and 2016, while the 50% retracement of the November/January decline stands a 1.0820. An advance beyond this region is required to confirm a new leg higher, towards the 1.0930 price zone, the 61.8% retracement of the mentioned decline.

Support levels: 1.0650 1.0610 1.0565

Resistance levels: 1.0710 1.0740 1.0770

USD/JPY

The USD/JPY pair settled a few pips above the 113.00 level, recovering modestly, but still at risk of a bearish extension, given market's reaction to FOMC's latest monetary policy meeting outcome. The pair traded in the green for most of the day, supported by easing risk aversion, as stocks in Asia and Europe recovering following strong Chinese growth figures, and extended up to 113.93 following better-than-expected US employment and manufacturing data. Also, positive data coming from Japan at the beginning of the day, helped ease risk aversion among Asian investors, as the Markit/Nikkei Japan Final Manufacturing came in at 52.7, up from 52.4 in December, indicating that manufacturing activity expanded at the fastest pace in almost three years as export orders surged. But the pair retreated after the FED failed to trigger dollar's demand, and with the pair having been rejected from the 114.00 region, the risk remains towards the downside. In the 4 hours chart, the price remains well below a bearish 100 SMA, currently around 114.00, whilst the Momentum indicator heads higher within bearish territory, but the RSI indicator hovers around 43 with no clear directional strength. The pair fell down to 112.82 as an immediate reaction to the FED, being now the level to break to confirm additional declines for this Thursday.

Support levels: 112.80 112.50 112.00

Resistance levels: 113.45 113.90 114.30

GBP/USD

The GBP/USD pair advanced up to 1.2679 this Thursday, surpassing January's high by a few pips and ending the day a handful of pips below it. Pound strengthened at the beginning of the day following the release of Markit Manufacturing PMI for January, as the index came in at 55.9 for the month, below December's two and-a-half years of 56.1. According to Markit, output growth was at a 32-month high, but input costs posted a record increase, due to the sharp fall of the Sterling following the Brexit referendum. From a technical point of view, the pair could advance further this Thursday, as in the 4 hours chart, the price is well above a now bullish 20 SMA, whilst technical indicators consolidate near overbought territory, in line with the low volumes at this time of the day. Seems unlikely that the pair will move much during the upcoming Asian session, as the market will probably wait for the outcome of the BOE's monetary policy meeting, and rush to price in the Quarterly Inflation report.

Support levels: 1.2625 1.2580 1.2535

Resistance levels: 1.2680 1.2730 1.2770

GOLD

Spot gold settled at $1,209.40 a troy ounce, having trimmed most of its intraday losses after FOMC monetary policy meeting resulted a non-event, with the US Central Bank leaving its policies on hold and offering no clues on upcoming moves. The bright metal fell down to 1,198.16 early US session, as strong American data triggered some dollar demand that anyway was short lived. The absence of information on the FED statement, clearly indicates that policy makers are still uncertain about what's next for the US economy under the new administration. From a technical point of view, the daily chart shows that the price managed to end the day above the 1,204.50 Fibonacci level, but also that it is still stuck around a bearish 100 SMA. Technical indicators in the mentioned time frame indicate lack directional strength, with the Momentum stuck around its 100 level and the RSI heading modestly lower around 59, not enough to confirm a downward extension. In the 4 hours chart, technical indicators retreated from overbought readings, but the price held above the 20 and 100 SMAs, both converging around 1,202.00, limiting chances of a downward move.

Support levels: 1,204.50 1,196.10 1,187.80

Resistance levels: 1,220.05 1,229.80 1,241.35

WTI CRUDE

Crude oil prices gained on the back of the FED, with dollar's weakness helping the commodity to shrug off the disappointing news for oil's market. West Texas Intermediate crude oil futures settled around $53.50 a troy ounce, recovering from a daily low of $52.23, achieved after the release of the US EIA stockpiles report, which showed a major build in inventories. US crude stockpiles for the week ended Jan. 27 rose 6.47 million barrels, nearly doubling expectations of a 3.840 million gain. West Texas Intermediate crude futures daily chart maintains a neutral technical stance, as the commodity is above a still flat 20 DMA, whilst technical indicators turned modestly higher, but hold within neutral territory. In the 4 hours chart, the upside seems a bit more constructive, given that the price is currently standing above its moving averages, all together in a 20 cents range, and that technical indicators maintain their upward slopes within bullish territory.

Support levels: 53.20 52.65 52.00

Resistance levels: 53.90 54.30 55.10

DJIA

After trading most of the day in the red, US major indexes closed in positive territory, amid strong Apple and Facebook earnings reports, this last, released right after the close. The Dow Jones Industrial Average gained 26 points and closed at 19,890.94 while the Nasdaq Composite added 0.50% to settle at 5,642.65. The S&P closed mostly flat at 2,279.55. A FED less hawkish than expected, also supported the recovery of US equities as a rate hike seems unlikely at the time being. Technically, the Dow presents a neutral stance, as in the daily chart, the price stands around a horizontal 20 DMA, whilst technical indicators head nowhere around their mid-lines. Shorter term, the 4 hours chart shows that the 20 SMA capped the upside on an early advance, now standing at 19,929, while technical indicators head higher, but still within negative territory, not enough to confirm further recoveries ahead. Once the dust settle, seems likely that investors will keep on unwinding the Trump-trade during the upcoming days, and therefore stocks will probably resume their slide.

Support levels: 19,844 19,806 19,745

Resistance levels: 19,929 19,975 20,036

FTSE 100

London equities market advanced this Wednesday, adding 8 points to settle at 7,107.65, despite a strong Pound. The Sterling managed to advance further against its American rival at the beginning of the day, but mining-related shares gained on the back of Chinese growth data. China's official manufacturing PMI for January came in at 51.3, beating expectations of 51.4, and slightly below December reading of 51.4. Among the best performers were Anglo American, which closed up 2.89%, while Antofagasta added 2.64%. The worst performer was Mediclinic International, down 3.36%, followed by Associated British Foods which closed down 2.88%. From a technical point of view, the daily chart shows that the benchmark remains range bound below its 20 DMA, whilst technical indicators maintain their bearish slopes within negative territory, maintaining the risk towards the downside. In the 4 hours chart, selling interest kept surging on advances towards a bearish 20 SMA, while technical indicators remain within negative territory, but with no directional momentum.

Support levels: 7,104 7,057 7,011

Resistance levels: 7,154 7,183 7,241

DAX

European equities recovered ground alongside with the greenback, as local government bonds and safe-haven retreated from Wednesday's highs on the back of solid US data. Also, backing the positive mood among local investors were news indicating that the manufacturing activity in the region reached a multi-year high at the beginning of the year. The German DAX closed the day at 11,659.50, up by 1.08% or 124 points. Financial-related equities recovered from Tuesday's setback and within the DAX led advancers, with Deutsche Bank up 4.02% and Commerzbank adding 2.23%. The DAX's daily chart shows that the index settled a few points above a horizontal 20 SMA, whilst technical indicators have bounced modestly from their mid-lines, overall neutral. In the 4 hours chart, the index is below a modestly bearish 20 SMA, whilst technical indicators recovered from oversold readings, but lost upward strength and turned flat within bearish territory.

Support levels: 11,609 11,550 11,000

Resistance levels: 11,711 11,770 11,804

STOCKS

The FED has kept rates unchanged and the markets are willing to wait till March to analyze economic activity in the Trump-era. In India, although the Union Budget has brought about little disappointment to some people, many investors are still positive for the coming year.

Dow (19890.94, +0.14%) has bounced from support on the daily candles. The Dow looks potentially bullish over the medium term and could re-test 20000 levels in the near term. On the downside, we expect the crucial supports at 19500-19700 to hold in the medium to long term.

Dax (11659.50, +1.08%) has recovered after testing 11535 yesterday. While above 11400-11500 levels, we could see a rise towards 11800-12000 in the coming sessions.

Nikkei (19099.93, -0.25%) is almost stable in the 19257-18900 region and could possibly break on the downside in the near term. Immediate target of 18650 looks possible for now before any bounce is seen.

Nifty (8716.40, +1.81%) bounced back sharply towards the end of the session yesterday as the support near 8500 holds well. Note that the upside could be limited to 8750-8800 in the near term from where a corrective dip towards 8600 or lower can be expected.

COMMODITIES

Weakness in Dollar Index keeps the precious metals positive. Crude prices may rise in the near term. Copper may test crucial resistance.

Crude prices have risen slightly but may remain range-bound in the earlier mentioned 52-55 (for WTI) and 54-58 (for Brent) regions respectively for about a few more sessions in the near term. Brent (56.57) and WTI (56.56) may move towards 58 over today and tomorrow.

Gold (1214.24) is trading just below immediate resistance near 1215-1220 and while that holds, we could see a corrective dip in the near term back towards 1180. In case a break above 1220 is seen, we would have to shift our focus towards 1240-1250 levels. For confirmation we need to keep a close watch on whether the support near 99.00/50 holds on the Dollar Index.

Silver (17.57) has moved up and could test 18 in the near term. 17.50 now acts as a decent support. Although near term looks bullish, we need to see how the other assets play out to boost prices in the near term.

Copper (2.7205) looks positive and looking at the commodity-currencies like the Aussie (0.7638) there could be an upside potential in the near term. But we would like to wait and see price action near crucial resistance at 2.75. Only on a break above 2.75, would we shift our focus on higher levels. While 2.75 holds, we could see a fall back towards 2.60.

FOREX

While the Budget pleased the markets and strengthened Rupee, the global Dollar weakness remains the same as the Fed keeps rates unchanged.

Dollar Index (99.59) has not moved much as the Fed rates have been kept unchanged. Repeat - the Dollar bulls need 99.50-00 to hold to keep any bullish possibilities open. On the other hand, a break below 99.00 may damage the technical structure considerably and open up much lower levels till 97.00 in the medium term. Inflection point.

Euro (1.0781) is in a pause mode for the last 2 sessions but it may test the target/resistance 1.0820-50 soon. The price action near 1.0820-50 may be decisive in the near to medium term and needs to be closely watched.

Dollar-Yen (113.05) is in sleep mode too, just like Euro. The upside chances are still open but the pair requires a break above the resistance of 113.40 to negate the immediate downtrend and open up 114.00-50.

Pound (1.2666) is trading at a 7-week high after the strong bounce from the major support of 1.2400 and is well on its way to our targets of 1.2800.

Aussie (0.7637), contrary to expectations, has rallied above the resistance of 0.7600 with a lot of strength which may propel it higher to the resistance near 0.7750 in the coming sessions.

Dollar-Rupee (67.47) is coming closer to our immediate target/support zone of 67.40-25. It is trading at 67.38 in the NDF now, not too far away from the 2-month low near 67.30.

INTEREST RATES

Interestingly, the equities rallied and Rupee (67.47) strengthened considerably following the Budget but the 10Yr GOI yields (6.5512%) actually closed marginally higher compared to the previous close. It raises questions about the internal steam of the dominant downtrend. It needs to be seen if the downtrend reasserts itself or an attempt to rise above the major resistance near 6.60-65% is seen in the next few sessions.

The US 10-5Yr yield spread (0.55%) is shooting up sharply and if the momentum remains unchanged, then it may test the resistance near 0.575% soon.

UK yields are facing immediate resistances at their respective current levels. Pound (1.2666) needs both the 10Yr (1.55%) and the 20Yr (1.98%) to break above the downtrend resistances near 1.57% and 2.02%. While the 20-10Yr (0.43%) is in a gradual decline, the 20-5Yr (1.39%) is trading at a 3-year high.

As widely expected, the Federal Open Market Committee (FOMC) left the target range for the federal funds rate unchanged at between 1/2 and 3/4 percent.

The Committee was fairly upbeat on the economy indicating that activity "continued to expand at a moderate pace", job gains "remained solid" and unemployment stayed "near its recent low."

The statement highlighted consumer spending as "continuing to rise" but also reiterated that business investment "remained soft." However, it also added that measures of consumer and business investment sentiment have "improved of late" suggesting a potentially brighter outlook, particularly for the latter.

Inflation was viewed as still being low but having "increased" recently. Moreover, the Committee views that it will rise to the 2 percent target over the medium term, at the same time removing the justification that this will happen as "earlier declines in energy prices and non-energy imports" dissipate. Market based measures of inflation expectations were viewed as low, a somewhat less-upbeat assessment than in December, when they were believed to be low but having "moved up considerably."

Aside for the change in the voting membership - which became less hawkish as Bullard (St. Louis), George (K.C.), Mester (Cleveland), and Rosengren (Boston) gave up their votes to Evans (Chicago), Harker (Philly), Kaplan (Dallas), and Kashkari (Minneapolis) - not much has changed in the statement. The vote to keep rates unchanged was unanimous.

Key Implications

As expected, this was largely a status-quo statement that highlighted some of the improvement in economic data as of late with the outlook across the FOMC appearing to be relatively constructive. Notably, the statement failed to highlight any potential risks (both upside and downside) that the U.S. economic currently faces.

Interestingly, the Fed's take on inflation appears to have been somewhat more hawkish, with reaching the target now seen as more related to the labor market healing rather than dissipation of drag from energy declines and dollar rally. Having said that, the Fed still appears concerned about the low levels of inflation expectations priced into the markets.

At this point we expect the Fed to remain on the sidelines over the next couple of meetings, waiting to see how the U.S. economy performs amidst the heightened uncertainty related to fiscal and trade policies in particular. Having said that, should economic activity continue to progress at a moderate pace, as is our baseline scenario, we do expect the Fed to hike before the mid-year mark and once again in the second half of this year so as to not fall behind the curve – something that's been highlighted by Chair Yellen and many other FOMC members.

Despite the annual rotation of four new voting members to the FOMC (and departure of 4), the Committee did not make any change to the policy rate today. There was, however, a slightly more optimistic tone in the accompanying statement. The statement highlighted the economy's continued expansion and solid labour market performance adding that confidence measures had improved. The risks to the near term outlook remained "roughly balanced." The members reiterated that rate hikes are expected to be gradual and the fed funds rate is likely to remain below its long-term level for some time. That said there was nothing in the statement to suggest any change from December when the majority of policymakers forecasted the fed funds target range would be lifted three times this year.

Our Take:

Recent reports showed that the economy continued to grow at a moderate pace accompanied by a strengthening in labour market conditions in line with FOMC members' projections issued in December. Inflation measures have ticked up with both the headline and core CPI rates above 2% while the Fed's preferred PCE measures are trending higher. Market-based inflation expectations also rose markedly in recent months (see chart below) however policy makers seem unconcerned about this development stating that the implied rates "are still low" and survey-based measures are holding steady.

Friday's payroll report is forecast to show another solid 175,000 job gain to start 2017 with markets likely to price in more aggressive hikes this year on any upside surprise. However enthusiasm for tighter policy will be contained by the uncertainty surrounding the new Administration's policies on tax cuts, trade and immigration. Any policy changes that are viewed as negative for growth will quickly see markets unwind expectations of tightening. For now it is more about the degree of policy tightening that is in question, not the need to reduce today's historically stimulative stance.

GBPUSD - GBP was seen building up on its Tuesday bullish price action during Wednesday trading session today. This development has left the pair targeting its key upside targets seen at 1.2673/1.2700 zone. Support lies at the 1.2600 level where a break will turn attention to the 1.2550 level. Further down, support lies at the 1.2500 level. Below here will set the stage for more weakness towards the 1.2450 level. Conversely, resistance stands at the 1.2700 levels with a turn above here allowing more strength to build up towards the 1.2750 level. Further out, resistance resides at the 1.2800 level followed by the 1.2850 level. On the whole, GBPUSD threatens further upside pressure.

Earlier in the week, we highlighted this daily NZD/USD support/resistance zone. Price rallied higher and our trades either weren't triggered because there wasn't a proper short term retest, or you were stopped out for a 1 unit loss as the daily zone was broken.

But no daily candle could close above the level and it now looks to be a classic fake out. With the confluence of trend line and horizontal resistance, there was always going to be sellers lurking who wanted to defend the level and it looks like that's what's happening now.

NZD/USD Daily:

The daily shows the higher time frame level having held and the potential plethora of open space that price has to drop down into now.

NZD/USD 15 Minute:

From here, once again we zoom into an intraday chart to find a retest of short term previous support turned resistance. I've highlighted the first obvious spot in green and as you can see, the market has given multiple chances to short this level, with maybe even one more right now as we speak.

You could have shorted the higher time frame resistance zone immediately after it held, sure. But I like to look for these intraday retests purely for confirmation and so I can increase the risk:reward available on the setup. How do you trade around these higher time frame levels?

As expected, the Fed maintained the target range unchanged at 0.50%-0.75% and made no major changes to the FOMC statement. Unfortunately, the statements usually do not change much from meeting to meeting and as this was one of the small meetings without updated projections or a press conference, we did not get any significant news on the Fed's economic outlook or when to expect the next Fed hike. The market reaction was very muted.

That said, the Fed could have turned either more hawkish or dovish at the meeting but we have to wait for upcoming Fed speeches and/or the minutes to find out. It would not be the first time that the minutes would reveal big discussions after a 'boring' statement.

Based on the December meeting, the Fed still awaits more information about Trumponomics as 'almost all' FOMC members think there are upside risks to their growth forecasts from the expectations of more expansionary fiscal policy. Thus the 'dots' may be revised up next time if we get more information about Trump's actual economic policy.

We still expect two Fed hikes this year (in June and December) but the probability of a third hike has increased due to a combination of strong US data and a more hawkish Fed at the December meeting. Given the Fed did not give any guidance on when to expect the next Fed hike, a hike already in March now seems unlikely, as the Fed has begun to prepare markets for upcoming hikes. A hike could come in May if the economy continues to surprise on the upside and markets stay calm.

Our triggers for Fed hikes this year are still 1) higher wage growth, 2) less labour market slack, 3) higher actual core inflation and 4) possible information on Trump's actual economic policy.

Markets have priced in two hikes this year, the first one in June. The markets think there is almost a 50% probability of a hike in May.

We expect three to four hikes in 2018, as Trump's economic policy is expected to have the biggest growth impact next year. Markets have priced in two additional hikes next year, so there is still room for higher rates, in our view.

The Fed signalled three hikes both this year and next year in the latest projections from December.

Due to technical difficulties, this is a very short and limited FOMC review without many accompanying charts. We are sorry for the inconvenience. As we only got limited information at the meeting, please see our FOMC preview: Fed is still waiting for news on Trumponomics for more information about our current Fed views.

What the Data Gives the FOMC Takes Away

Last night's US data dump left more than a few investor's tongues wagging. ADP exceeded even the most optimistic of estimates while the US ISM data printed robustly across the main categories. On the other hand, the FOMC came off a tad dovish as the Fed continues to describe business investment as being 'soft'. The balance of their view remains mostly unchanged. As expected, the statement was not designed to light a fire under a potential rate hike at the March FOMC meeting, although the overall surging ADP data has added a bit of fuel to the debate. However, I caution reading too much into the ADP data as it does not necessarily correlate to an NFP surprise.

US equity index remains relatively unchanged on the day, while US Government Bond yields have firmed and offered some support to a struggling greenback after an up and down session. US dollar was initially backed by US economic data while the dovish FOMC wiped out the dollar momentum.

On the rates front, the market is currently pricing around 25% of a move in March, 40% by May and approximately 80% by June. However, if we see a strong showing on Friday's NFP data, it would lead the market to increase its March expectations

Australian Dollar

Desperately seeking a trend, best describes the Aussie dollars' fortunes this week. No matter what side of the coin you are on, it been a tough grind on either flip. Overnight, the bullish US economic data was tempered by a dovish FOMC, and Aussie fortunes shadowed the more general US dollar momentum. But with the greenback unable to exploit on the stronger data, the Aussie should remain firmly bid on dips.

If we were looking for an opening, the soaring December Australia Trade Balance might have provided one, coming in at a record 3.5 billion versus 2.0 billion A$ expected. This print is a pretty big number and very hard to ignore. The desk focus now shifts to the always critical .76.25-35 congested zone.

Keep in mind as the market continues to debate the course of US FX policy, it will take little more than another bully shove from President Trump to send the greenback toppling again.

Japanese Yen

Mixed NY session for the greenback which surged to around USDJPY 113.90/95 after the ISM and ADP data but failed to hold onto gains and then slipped on the dovish FOMC. To be honest, the initial move higher was so weak; traders acted out of habit and were quick to sell the dollar back for a small profit.

The Trump Fear Factor has left it is footprint all over the USDJPY view. The US administration's protectionist rhetoric that the real threat trade conflict is ruinous to the USDJPY upward momentum. The correlation to higher US bond yields is eroding while the markets acuteness to softer yields accelerates. Very much an asymmetrical risk trading USDJPY off US bond yields in this market. As such, the upside is fraught with peril in this environment

Chinese Yuan

Tension continues to heighten on the US Trade front. Investor and corporations are frustrated over the PBoC's iron-fisted controls over capital outflows., so much so the market is turning into and over a regulated quagmire, and if the PBoC continues down this road, they will severely erode investor confidence. How local business seeks to brand globally, given these kerbs on capital outflow is beyond comprehension.

On the currency market front, the CNH continues to trade off broader US moves. The markets remain glued to development in the US, which are predictably impacting global investor sentiment.

EM Asia

Relative peace on the Ringgit front, likely due to the Lunar New Year as much of the local APAC FX space has been lacking liquidity.

Despite pockets of support, it was difficult to shake my long standing bearish base case scenario. Forget the dovish Fed lean; we have grown to expect that from this sitting of FOMC when geopolitical risk flares. However, we should be focusing on the US economic data which has for the most, part been supportive to higher US interest rates and this is where my bearish view lies. With the US Bond yields tipped to move higher on the first hint of Fiscal Policy, it is hard to envision the local currencies holding in over the long run.

The KRW has been the star of the region of late as the currency has been able to shift aside the waves of protectionism despair as cheap valuations on the local equity market continue to attract portfolio inflow. As for proper measures, January's trade produces stellar export growth +11.2%(YoY), the first double-digit growth since January 2013. The pretty stellar number is hard to ignore as are the cheap equity valuations.