Risk taking subdued post FOMC rally

Last week, besides the main event from the FOMC, many other central banks followed suit in posting dovish comments on the monetary outlook in light of the recovery in global growth taking longer time than anticipated. Markets are trading on back of the monetary events taking place and this creates a lot of noise for the market players in the sense that central banks have been taking the market by surprise and there has been a bias towards a more dovish tone more or less across the board in light of the weaker global demand. The arsenal of weapons from central banks have changed from being interest-rate driven to become focused on the balance sheet in the bond purchases. Both the ECB and the Fed have carried out this exercise in order to induce growth and credit creation, but these have so far only increased the amount of global debt and central banks balance sheets.

Last week in equities, only the US markets took home weekly gains (5th in a row for the main indexes), while EU and Asia retreated. In FX, the USD fell against its peers and we could see this theme to continue in the medium term. As a result of the falling US Dollar, commodities enjoyed a decent rally with oil and posting its fifth weekly gain. Gold posted a weekly doji with offers kicking in above the 1260-area.

This week is a short week in many markets due to Easter with the majority of markets closed on Friday and northern Europe also closed on Thursday and Monday next week.

  • From the Euro zone, we saw a weaker than expected Current Account for January, but December figures were revised higher. Tomorrow, sentiment indicators from the Manufacturing and Services sector will be interesting as these are the preliminary figures for March. All are expected to come out stronger than 50, which signals expansion. In addition, the ZEW sentiment (expected to drop to 8.2 vs. 13.6 prior) will also have an impact in the market. Wednesday, we have the preliminary Consumer Confidence for March, which is expected to increase a tad to -8.5 from -8.8. Euro pairs have
  • The US will be busy with releases with focus on housing on Monday, Tuesday and Wednesday, while Durables will be on focus on Thursday. Friday is the big day with Q4 GDP, expected unchanged at 1.0%.
  • UK players will be focusing on inflation data (expected to rise) on Tuesday and Retail Sales (expected negative MoM) on Thursday.

On the monetary side, we have central bank actions from Hungary, Philippines, Taiwan, Thailand and Turkey, so we could be in for a lot of action in EM markets

Technically, the theme has been similar across FX majors with a significant USD-depreciation following the FOMC, which has not followed through in the aftermath. In EUR/USD, the pair is still stuck in the Wedge formation and GBP/USD has seen offers above the 1.45-figure. USD/JPY took out 2016 lows on Thursday, but has not been able find enough offers to sustain selling interest. Commodity-currencies, AUD and CAD in particular, pulled back on Friday, but upside still looks favourable for these, so stay long AUD/USD and short USD/CAD.


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