Sideways Trading Ahead of FOMC

Despite some surprises to the US Retail Sales and PPI, markets were more or less unchanged in yesterday’s trading session while awaiting the announcement of the interest rates and monetary outlook from the FOMC tonight. Oil traded lower as Iran expressed that they had no intention of capping oil production despite a relatively weak demand from the global market. In the US primaries, Donald Trump and Hilary Clinton enjoyed victories, but this had no impact in the markets.

Overnight, New Zealand Current Account figures for Q4 came out stronger than expected, but the market reaction was muted. NZD/USD has after testing the 0.68-figure last week, dropped 2 figures to 0.66 with support at the February 2016 lows at 0.6545. A dovish outlook and macro figures in China looking to disappoint is affecting the Asian region and we could see additional downside in this pair despite some positive carry still persisting if going long. Elsewhere in Asia, stocks in Japan pointed lower despite the BoJ voicing potentially negative interest rates, which would help the build-up in risk.

20160316 NZDUSD.Daily

Today, we saw UK labour market data coming out better than expected, but the GBP continues to be under pressure. Despite a better than expect Claimant Count Rate (out at -18k vs. -9.1K prior) and higher average Earnings, the unemployment rate was unchanged at 5.1%. As mentioned in previous updates, the GBP will be under pressure and is expected to be very volatile ahead of the UK referendum on the EU membership on June 23rd. Hence, long volatility plays could be interesting.

20160316 GBPUSD.Daily

The main event today will be this evening, where the Fed will announce interest rates. Ahead of this, we have a string of US data – at 1330CET the US Building Permits (Feb), CPI (Feb) and Housing Starts (Feb) will be released and then at 1415CET we have the Industrial Production (Feb) and Manufacturing Production (Feb). Consensus for more or less all point towards a slowdown, so it will be very interesting to see if Yellen tonight will be able to convince market players that we are on the right path. Taken into the account, the recent improvement of the US Labour market which should influence growth figures positively, focus is on whether or not Yellen and the rest of the Committee has reached a conclusion about the outlook. Should we see negative interest rates being mentioned again, we could see additional US Dollar weakness and would prefer to go long EURUSD on dips towards 1.1060.

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Posted on March 16, 2016 Posted in Uncategorized
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