Market Analysis: 6 March 2017
by Christala Parmaxi, CFTe
Despite the overall hawkish tone of Janet Yellen’s speech on Friday, the US Dollar was driven lower against almost all of its major counterparties afterwards. The chairwoman said that if the economic data continues to evolve in such good way, then a March rate hike would be appropriate. The Vice Chairman Fisher also supported indirectly a March rate hike giving hints that he would likely be voting for it. According to those comments, the Fed Funds Futures are currently giving a likelihood of 80% of a rate hike in March. The lack of new information and the lack of certainty disappointed investors, driving the US Dollar to depreciate against the Euro by -1.1% and closing Friday lower against the G7 except the New Zealand Dollar which closed lower against all of the G7 on Friday as well.
Friday’s big winner was the Euro which appreciated by 1.5% against the NZD, 1% against the Canadian Dollar and traded higher against all of its major counterparties. EURUSD today broke to the upside the significant psychological resistance on 1.06 and if it keeps on trading above it, then a trend reversal is in the cards. This view is also supported by the double bottom pattern that can be observed on EURUSD 4-hour chart.
Monday is quiet with the only major economic release to be the Australian Retail Sales of January, released at 0.4%, in line with expectations. On Tuesday we expect the Interest Rate decision and statement from the Reserve Bank of Australia at 03:30 GMT; the Bank is expected to keep rates unchanged at 1.5% while the Governor Lowe recently stated that there is plenty of room for further easing. Aussie has been under pressure lately, but considering the neutral tone kept by the RBA during the last policy meetings and the dovish comments of the Governor, a neutral tone would possibly be considered as bullish while easing would drop the Aussie lower. During Wednesday’s US session there is the release of the Canadian Trade Balance and Ivey PMI index which are expected lower and higher than the previous month respectively.
During Wednesday’s Asian Session we will get February’s Chinese Trade Balance which is expected to be half of what it was in January; The Chinese Yuan lost the battle against the US Dollar lately, thus such news would possibly boost the USDCNH higher near 6.9. Wednesday’s US session important economic release would be the ADP Nonfarm Employment Change which is expected lower this month, at 190K. This would concern the Fed policymakers for March rate hike and thus Dollar’s bulls as well.
The European Central Bank is having its monetary policy meeting on Thursday; with the rates decision announcement at 12:45 followed by Mario Draghi’s press conference at 13:30 GMT. The Bank is widely expected to hold Deposit Facility rate at -0.4% and interest rates at 0%. The latest releases from the Eurozone found inflation near ECB’s 2% targets, thus the ECB may refer to this change as an improvement which would be deemed hawkish for the Euro or as a temporary rise due to the recent economic developments including oil prices which would be deemed dovish for the Euro. The president was generally dovish during the recent policy meetings and not willing to discuss tapering of the QE program yet.
Last but not least, on Friday the spotlight is going to be the Non-Farm Payrolls report and unemployment rate for February with expectations lying a bit below 200k for NFP and 10 basic point lower at 4.7% for the unemployment rate. This NFP report is critical for the rate decision during the Fed March monetary policy meeting, thus it would be treated accordingly by the investors. Moreover, during the European session we will get the British Manufacturing Production Index which is expected at the low levels of -0.6% while the Canadian Employment Change is expected negative at -2.5K indicating jobs cut instead of addition on February. Both the British Pound and the Canadian Dollar are likely to fall after such announcements.
The Cable keeps on falling with no major corrections despite the Dollar’s rebound on Friday. The pair tested the psychological resistance of 1.23 with no luck to break and is trying to break for the second time the support of 1.25 at the time of writing. We would expect a further drop down to the next valid support of 1.2215. Both RSI and MACD are on bearish territories indicating bearish signals while the ADX indicates overextended negative directional movement. The valid resistance levels are near 1.23 and 1.2275 thereafter.
The Aussie is trading just below the psychological resistance of 0.76 at the time of writing while this critical level will determine price next movement. The pair was trading on a near-term downtrend just before the Fed members’ speeches, and found support at the critical level of 0.754. There are two possible scenarios which will likely be determined by tomorrow’s RBA policy meeting. If the price manages to break the resistance of 0.76 to the upside on a closing basis, then we’ll see it moving higher with the next valid resistance being at around 0.765. On the other hand, the pair is likely to move within the rectangle of 0.754 and 0.76 if Bolligner’s mid-band will be capable of keeping it below 0.76 cents. MACD and RSI are both on bearish levels but near their equilibriums while ADX has turned to positive directional movement indications.
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June 8, 2017
June 6, 2017