Mixed Sentiment Ahead of FOMC, Oil in new 2016 highs
Markets have been trading more or less sideways in the beginning of this week in light of key statements from the Federal Open Market Committee in the US and important macro figures for developed markets coming up. Despite oil printing new 2016 highs, weak figures (Durables, Services PMI, Consumer Confidence) from the US put a bearish bias to the US Dollar, while sending equities facing downwards. The Euro gained, but made European equities less attractive due to the terms of trade. Fixed income saw an additional pickup in yields, while in precious metals, gold was bid for the second day in a row.
Overnight, Asian equities have been flat to lower and terrible CPI from figures from Australia have sent the Aussie on the offer across the board (AUDJPY down 1.8% overnight) with Australian equities also taking a beating, down for the third day in a row. Headline Australian CPI came out in Q1 at 15 year lows at -0.2% vs. an increase of 0.3% expected, so analysts were clearly wrong there. The weak figures could clearly keep the currency under pressure for an extended period and put pressure on the RBA for lower interest rates. After printing new 2016 highs just last week, AUDUSD tanked on the CPI figures, sending the pair back below the 61.8% fibo retracement in the 2015 highs-2016 lows wave. 50-day DMA coming in at 0.7515-area.
Today in the European session, the preliminary Q1 UK GDP will be of interest and markets are expecting a QoQ/YoY figure of 0.4%/2.0% vs. 0.6%/2.1% prior. GBP is quite fragile at the moment and the market is short ahead of the event risk with the BREXIT referendum in the back of the mind of market players as well. EURGBP broke below the 50-day SMA last Friday and is currently hovering between the 50- and 100-day DMAs with oscillators approaching oversold territory.
In the US session, the Pending Home Sales will be of interest (expected at 0.5% vs. 3.5% in February), but we don’t think this will have a major impact today as all eyes are on the FOMC interest decision, where unchanged rates are expected by the market, but focus will be on the FOMC’s outlook for the US economy and how the global risks will be emphasized. We expect the statement to remain dovish (also in light of the recent soft figures from the US economy) and could see additional USD-weakness. The balancing act the for the Fed will be to keep growth and inflation in check and keeping the market stable without putting too much pressure on the interest rates, considering the impact on the US debt. The S&P has been on the bid since mid-January, but the index has found offers at the November 2015 highs. We see the range 2077-2111 as potentially being a good break-out play for the FOMC.
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