Analysts at ANZ explained that the Federal Reserve will leave monetary policy unchanged this week but its finger remains on the trigger.

Key Quotes:

“Having raised interest rates only last month the Federal Reserve will pause for breath this week; consistent with its policy stance of “gradual increases”. Nonetheless, the case for tighter monetary policy remains strong with the recent data flow likely to give the Fed the confidence to raise rates another three times this year.”

“1Q GDP growth was softer relative to previous quarters, as is usually the case despite extensive seasonal adjustments. ”

“The prospects for 2Q activity look good with consumer confidence and business surveys having rebounded. The combination of rising wages and employment together with huge tax cuts means the domestic demand story looks robust while the softer dollar gives US exporters a competitive edge to benefit from stronger global demand.”

” At the same time, inflation readings continue to firm with both headline and core CPI above the Fed’s 2% year-on-year target while the headline and core personal consumer expenditure deflators will almost certainly join them next month.”

“Interestingly, there has been a growing hawkishness to much of the commentary from Federal Reserve officials. Even arch-dove, Minneapolis Fed President Neel Kashkari, who had been arguing for no further rate hikes, has swung behind the Fed’s own projected path of two to three more rate rises this year. As such, the accompanying statement is likely to retain an upbeat bias and we continue to see the balance of risks skewed towards a more aggressive Fed response to combat fears of economic overheating.”

“US trade protectionism remains the main threat to our view.”

“Treasury Secretary Steven Mnuchin is in China this week for preliminary talks to try and get a deal that will make trade between the nations “fairer” in the minds of the US administration. This will be a tough ask and at this early stage is unlikely to deliver anything significant.”

 

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The Personal Consumer Expenditure (PCE) price index rose 1.9% y/y in March matching analysts expectations but fails to give the greenback a significant boost.
The FOMC on Wednesday is the next salient event on the traders’ radar.
The NZD/USD is trading in a range between the 0.7040 and 0.7100 level.

The NZD/USD is trading at around 0.7046 down 0.55% in Monday’s trading as the London’s forex session is about to come to an end. 

The US Dollar is on a bull run. However, since last Friday bulls are not pressing their USD long bets on the release of US macroeconomic data. Recently the release of the Gross Domestic Product on Friday, which came above expectations, and the Personal Consumer Expenditure (PCE) data (on Friday and Monday), in line with consensus failed to provide any meaningful reaction in the buck. 

Wednesday’s Fed’s Monetary Policy Statement also known as FOMC meeting will be closely watched by investors who want to know if a rate hike is on the cards in June. If the Fed fails to convince the market and blame market conditions or rising US Treasury yields there is a risk that investors sell USD.

The US Dollar Index (DXY) is trading sideways in the 91.80-91.90 range in Monday’s trading. The prospects of peace between North and South Korea favors risk-on mood and the USD. However, the US Treasury yields are trading lower close to 2.950%.

Earlier in the day the Chicago Purchasing Managers Index, Pending Home Sales and the Dallas Fed Manufacturing Business Index all came below consensus providing a small rebound on NZD/USD.

Overnight, in New Zealand, the ANZ business confidence fell to a three-month low at -23.4 in April from -20 reported last month, further adding to the already fragile sentiment on the NZD currency.

NZD/USD daily chart

The trend is bearish. Immediate support is seen at 0.7039 low of last week and at 0.6954 swing low while resistance is seen at the 0.7100 handle and at the 0.7153 swing low.

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The index climbs further to the 91.90 area on US releases.
US 10-year yields stasy depressed near 2.96%.
US PCE rose in line with expectations 1.9% YoY.

The US Dollar Index (DXY), which tracks the buck vs. its main competitors, remains on a firm note and trades closer to the critical 92.00 milestone.

US Dollar bid near 92.00

The index caught fresh bids near the 91.90/92.00 handle after US inflation figures measured by the PCE rose in line with initial forecasts at an annualized 1.9% during last month.

In addition Personal Income rose less than expected 0.3% MoM and Personal Spending expanded at a monthly 0.4%.

Further data saw the Chicago PMI at 57.6 vs. 58.2 from prior surveys while Pending Home Sales expanded 0.4%, missing consensus.

DXY, in the meantime, keeps the healthy upside well and sound at the beginning of the week, adding to last week’s gains despite yields of the key US 10-year note retreated from recent tops beyond the 3.0% level.

US Dollar relevant levels

As of writing the index is up 0.34% at 91.81 and a break above 91.98 (200-day sma) would open the door to 92.52 (61.8% Fibo of 95.15-88.25) and finally 92.64 (high Jan.10). On the other hand, the next support emerges at 90.89 (38.2% Fibo of 95.15-88.25) followed by 90.72 (10-day sma) and then 89.95 (high Apr.20).

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   •  USD manages to preserve daily gains despite mixed economic data.
   •  Repositioning trade likely to influence price-action ahead of RBA.

The AUD/USD pair maintained it’s heavily offered and is currently placed just a few pips away from 4-1/2 month lows touched on Friday.

With markets reacting little to today’s mixed Chinese PMIs, resurgent greenback demand was seen as one of the key factors prompting some aggressive selling around the major. Despite disappointing Chicago PMI print, the key US Dollar Index spiked back closer to multi-month tops and kept exerting pressure through the early NA session. 

Meanwhile, traders seems to have largely ignored a subdued action around the US Treasury bond yields, which tends to benefit the higher-yielding currency, with a modest uptick in copper prices also doing little to lend any support to the commodity-linked Australian Dollar. 

It would now be interesting to see if the pair is able to find any buying interest at lower level as traders now start repositioning for the upcoming RBA monetary policy decision, due to be announced during the early Asian session on Tuesday.

Technical levels to watch

Any meaningful recovery attempt beyond 0.7560-65 area might continue to confront some fresh supply ahead of the 0.7600 handle, above which a bout of short-covering could lift the pair further towards 0.7645-50 resistance. 

On the flip side, the 0.7535-30 region might continue to act as an immediate support, which if broken should now drag the pair towards challenging the key 0.7500 psychological mark.
 

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Senior Analyst at Commerzbank Axel Rudolph noted the cross should shift to the bullish stance on a close above 25.51.

Key Quotes

“EUR/CZK retests the minor psychological 25.50 mark and March high. A rise above the next higher 25.51 early November low will put the January high and 200 day moving average at 25.63/65 on the cards”.

“Therefore as soon as a daily chart close above the 25.51 level were to be made, we would change our forecast from the current neutral to a bullish one”.

“While resistance at 25.50/51 continues to cap, though, the risk of a slip back towards the 25.24 April low and the February 2013 low at 25.18 occurring remains in place”.

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USD/JPY bull trend intact with strong USD and risk-on mood supported by potential peace between the two Koreas.
Wednesday’s FOMC is going to be crucial for the US dollar as traders want to know if a rate hike is coming in June.

The USD/JPY is trading at around 109.37 up 0.3% on the first day of the week. 

The USD/JPY is mainly driven by US dollar sentiment and the general market sentiment. The historic meeting between the North and South Korean’s leaders and talks about denuclearization favor risk-on mood and the demand for safe-haven assets such as gold and yen is soft. 

Further on in the week, the next salient events will be the Federal Open Market Committee (FOMC) and the Non-Farm Payroll on Friday.

The US dollar is in a strong bull trend as investors are pricing in three to four rate hikes in 2018. On Wednesday the Federal Open Market Committee (FOMC) will meet and it is widely expected that Jerome Powell, the Fed’s President and his colleagues, will prepare the market for a rate hike in June. On the other hand, if the Fed appears somewhat dovish and express doubts for a June hike due to market conditions or rising US Treasury yields, there is a danger that the market might dump the greenback according to analysts.

Earlier in the day, the US inflation with the Personal Consumption Expenditure came in line at 1.9% matching analysts expectations. It is worth mentioning that 2% is the Fed’s target for inflation. Even if today’s data doesn’t exceed consensus the market is mainly waiting for Wednesday’s Fed Monetary Policy Statement to confirm or challenge the strong sentiment on the greenback.

Meanwhile, Japanese markets are closed due to the Showa Day holiday. 

USD/JPY 4-hour chart

The trend is bullish. Key resistance levels on the USD/JPY to watch is the 109.49-109.55 area which is the 100-period simple moving average on the weekly chart and the high of last week respectively. Further up the 110.00 handle is also a potential resistance. To the downside, support is seen at 108.96 and 108.54 swing lows.

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