Market Analysis: 2 March 2017
by Christala Parmaxi, CFTe
The US Dollar surged against almost all of its major counterparties, boosted by US President Donald Trump’s speech and FOMC members’ monetary policy commentary. The only currency that managed to close Wednesday higher against the greenback was the Australian Dollar. The New York Fed President Dudley usually maintains a neutral tone on his policy commentary, however during his speech on Tuesday he stated that a rate hike has become “a lot more compelling”. Moreover, FOMC members Williams and Bullard also supported the need and the increased likelihood of a rate hike in the short-term. While investors were already caught by surprise by Dudley’s new stance, the US President revealed his plans to invest 1 trillion US Dollars in infrastructure. Furthermore, on Wednesday the Fed Board Governor Lael Brainard mentioned that a rate hike will probably be appropriate relatively soon due to the improved economic conditions and the Fed inflation and growth targets which are close to the actuals. The rate hike probability from the Federal Fund Futures is now lying at 50% from the 36% likelihood at the beginning of the week. The next critical event is Janet Yellen’s speech tomorrow during the late US Session since investors are going to look for any hints from the Chairwoman about the exact timing of the next rate hike; whether it will be March or May monetary policy meeting.
In line with expectations, the Bank of Canada held its monetary policy unchanged and the interest rates steady at 0.5%. The Bank left the door open to future easing holding a dovish tone saying that they will be watching closely the higher oil price effect on the Canadian economy. The Canadian Dollar fell right after the announcement closing the day lower against the US Dollar and the Australian Dollar while it managed to close the day higher against the rest of its major counterparties. The USDCAD is currently trading below the significant resistance level of 1.34 which is actually the latter higher high of the prevailing daily downtrend and a critical level to be watched for a trend reversal or the downtrend continuation.
The world’s most traded currency is still trading on a near-term downtrend following our previous comments and it is ready to test the critical psychological support of 1.05 which is the next bearish target. RSI and MACD are clearly indicating bearish signals with MACD crossing its signal to the downside below the equilibrium level and RSI slopping downwards below the level of 50. Another bearish sign it the fact that the price is trading below the downtrend line and below the triple SMAs. The valid support levels are 1.049 and 1.045 while the resistances are near 1.055 and 1.057.
The Pound is the only currency out of the G7 group to resist the strength of the US Dollar today. While all of the G7 members have sunk today, the Cable is the only one which is still trading on a near-term rectangle within 1.225 and 1.232. There was a positive economic data release during the European session today for the UK, however the pair did not react to it. It seems that 1.225 is a strong support which will need more pressure to be broken. However, the prevailing downtrend is still in place and the likelihood is for the trend to persist. The next valid support levels are 1.225 and 1.22 while the resistances are near 1.232 and 1.237.
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