- Outcome of Fed meeting had little influence on SWFX sentiment, which is now 59% bearish (58% yesterday)
- More than half of pending orders continues to estimate growth for EUR/USD
- Monthly R1 acts as main resistance for the pair; bulls keep eyeing higher levels above 1.13
- Daily RSI indicator is telling us the cross is overbought after Wednesday, but aggregate signal is still mixed
- Economic events to watch over the next 24 hours: Swiss PPI (Feb); Swiss National Bank Interest Rate Decision; Swedish Unemployment Rate (Feb); Norway Central Bank Interest Rate Decision; Euro zone CPI (Feb); US Unemployment Claims (Mar 12), Current Account (Q4), Philadelphia Fed Manufacturing Index (Mar) and JOLTS Job Openings (Jan)
The Fed eased monetary policy, not by cutting interest rates, but through words. In line with analysts' expectations, the US central bank held interest rates steady. The Fed noted that moderate growth of the US economy and robust job gains would allow it to tighten policy this year. However, instead of four rate hikes expected earlier, now fresh projections showed policy makers expected two quarter-point lifts by the end of the year. The US economy continues to face headwinds from an uncertain global economy, the US central bank admitted. Fed officials anticipated weaker economic growth and lower inflation this year and revised their estimate of where the targeted lending rate would be in the long term to 3.30% from 3.5%. Fed policy makers marked down their estimates of inflation this year to 1.2% from 1.6%, but see it climbing close to the central bank's 2% medium-term target next year. Fed Chairwoman Janet Yellen also said that the US economy is expected to grow just 2.2% this year, down from 2.4% in December, due to weaker global growth. The Fed adopted a cautious approach to rate outlook at its policy meeting in January in light of a selloff on financial markets, lower oil prices and sliding inflation expectations. The Fed's cautious approach followed the recent similar action from its peers. In January, the BoJ cut rates into negative territory. Last month, the PBoC lowered reserve requirements, while last week, the ECB cut rates further into negative territory and expanded its bond-buying programme.
The UK economy posted some better than expected data on the labour market, which continued on a strong footing in January. Britain's unemployment rate remained unchanged at 5.1%, the lowest level in a decade, for the third month in a row, indicating the labour market continued to tighten markedly at the beginning of the year. Despite the headline jobless rate remained steady, the number of Britons applying for unemployment allowance continued to decrease for the sixth straight month, dropping by 18,000 in February. Moreover, British wages increased more than expected in the three months to January, but remained below pre-crisis levels and are unlikely to rise sharply this year, in the light of weakening domestic economy which faces a referendum on the UK's membership of the European Union in June and a slowing global economy. Total earnings including bonuses climbed 2.1% on the year in the three months to January, compared with 1.9% in the fourth quarter and against a forecast of 2.0%.For the month of January alone wages jumped 2.5%, the biggest rise since August, after a 1.7% increase in December. At the same time, earning without bonuses rose 2.2% in the three months to January, up from 2.0% in the prior month. The Bank of England had estimated that wage growth would be 1.75% in the fourth quarter of 2015 and rise to 3% by the end of 2016.
Upcoming fundamentals: Euro zone inflation to hold below zero
Thursday will be another period full of central bank events, as well as other fundamentals that are likely to put some pressure on the markets. Swiss National Bank's interest rate decision is first up at 8:30 GMT. The Libor rate, which is a reference rate for the interbank lending market, is likely to be held at the current -0.75% level. Normally, the SNB is also providing a target range (now from -1.25% to -0.25%) for the Libor rate where the regulator tries to maintain it over time. Norway's central bank will continue with its monetary policy report at 9:00 GMT. Norges Bank is forecasted to cut the key rate by 25 bps to 0.50%, which is the interest NB pays for mandatory reserves of commercial banks with the central bank. In the meantime, final inflation data for the Euro zone for February will be out at 10:00 GMT. Analysts expect the headline CPI reading to be affirmed at -0.2% on a yearly basis.
EUR/USD spikes to monthly R1 after soft Fed
The Federal Reserve turned somewhat bearish on monetary policy yesterday, therefore leading to weaker Greenback and uplifted EUR/USD cross. The rally exceeded 100 pips and was stopped by the first monthly resistance, as it had been expected. We are not ruling out a setback on Thursday and a correction to the downside, while even the daily RSI indicator assumes the pair became overbought on the basis of 24 hours. However, in case the bulls manage to push EUR/USD beyond 1.1227 and close there, then next bullish goals will be two major downtrends around 1.1330.Daily chart
In the one-hour chart the observed currency pair breached the downward-sloping trend-line at 1.1185, which connected the February high with the previous March high. The pair has therefore set a new monthly peak slightly above 1.1240, but the outlook suggests the gains may be extended even further. However, at first EUR/USD must continue trading above 1.1180 during the entire Thursday session.
Hourly chart
Orders bounce back as SWFX sentiment changes only a little
A reaction to decisions of the Federal Reserve was more noticeable in both OANDA and SAXO Bank markets. This is confirmed by the fact that the percentage of long positions with OANDA tumbled below 40%, while yesterday the share stood close to 43%. As for SAXO Bank, here the market is short on the currency pair in 67.58% of all cases.
Spreads (avg,pip) / Trading volume / Volatility
There is only a marginal bias in favour of the Euro vs Dollar this week
Despite the fact the EUR/USD currency pair has been trading in a strong uptrend on Friday, this week's traders' opinions divided almost equally (54.5% bullish vs 45.5% bearish). Dukascopy Community members see the pair closing at 1.09 this Friday, on March 18. This level is slightly below the weekly pivot point, suggesting a close behind this level will indicate further correction or even a beginning of a new trend to the downside.
On the positive side of traders' opinions, STARLINE has said that "the ECB has done a lot to encourage inflation in the Euro zone during the March meeting. Therefore, I am expecting only one existing option for the Euro– the bull direction." Such a view is disagreed by megajorko who claims that according to the 1H chart for EUR/USD "the bullish momentum has ended, but it is hard to say that selling can start." The trader added that "there is a formation of a double top, but there must be something additional to help the bears to take control. Forecast for EUR/USD is somewhat neutral and rangy."