All eyes on the Fed today, with traders expecting modestly dovish tone to outlook

Summary

• USDCAD: Traders managed to stage an impressive recovery in USDCAD yesterday.  It wasn’t looking good early on after the market broke trend-line support in the 1.3305 area, however buyers returned at the next key level in the 1.3250-60s.  US equity markets then started to reverse lower as some negative US/China trade headlines crossed, and this appeared to drag crude oil prices down as well.  This “risk off” momentum carried all the way into the NY close, which allowed USDCAD to fully regain the 1.3305 level and then some.  The market now sits marginally higher at horizontal chart resistance in the 1.3330s as traders now await the Fed’s latest outlook on monetary policy.  The press release from the FOMC will come out today at 2pmET, followed by a press conference at 2:30pmET.  Market participants appear to be pricing in a modestly dovish tone from the Fed today, and so we think there’s a chance the broader USD moves higher in a “sell the rumor, buy the fact scenario”.  Conversely, expect significant pressure on the USD should the Fed lower its dot plots materially and sound more cautious than expected, as the market is not really positioned for this.  Today also features the weekly release of the EIA oil inventory report at 10:30amET.  Traders are expecting a minor build of 0.074M barrels after two weeks in a row of draws.  May crude oil has lost chart support in the 58.90-59.00 region this morning, which is also helping to underpin USDCAD here.

• EURUSD: Euro/dollar is trading marginally bid into the NY open this morning, but we’re still trading within yesterday’s NY range of 1.1350-1.1365.  Softer than expected German PPI data for February and a rough European open for Italian bonds appeared to cause the EURUSD selling below support in the 1.1350s early on, but a wave of USDCNH selling (Chinese yuan buying) since then has brought the EUR buyers back in.  We still think that a strong break above the 1.1360s will spur follow-through buying into the 1.14s, but we think we’re going to need to see a “more dovish than expected” tone from the Fed today in order to get there.

• GBPUSD: Sterling is lagging the broader G7 currencies so far today as Theresa May’s plan to request a three-month extension for Brexit is being met with some stiff resistance from the Labour Party.  MP Alison McGovern has tabled an emergency debate to take control of Brexit extension negotiations away from Theresa May and put it in the hands of Parliament.  Reuters has published an EU document this morning say that a short extension might not be legally and politically feasible, whereas an extension to “at least the end of 2019” would be preferable.  All eyes will now turn to EU leaders, when they meet in Brussels tomorrow for the next EU summit.  All 27 members states would have to unanimously agree to any sort of Brexit extension.  Chart support in the 1.3210s has given way as we type here in GBPUSD.  The next support level comes in at 1.3170-95 level; then there’s not much else until 1.3100.  The EURGBP cross is attempting to break its downward trend today with a swift move above the 0.8590 level.  We think this doesn’t help the GBP here.

• AUDUSD: The Aussie had an uneasy Asian session last night after the RBA’s Bullock expressed concerns about the health of Sydney’s apartment market.  More here from Bloomberg.  This saw AUDUSD fall quickly below chart support in the 0.7070s, but the ensuing selloff in USDCNH during European trade came to the rescue.  We can’t point to a specific headline to explain today’s yuan strength, but it’s not surprising to see given the market’s recent struggle to break above chart resistance at the 6.7250s.  The Australian dollar is now trading back above chart support at 0.7095, which it lost in late NY trade yesterday.  Next up is the Fed meeting at 2pmET and then Australia’s employment report for February at 8:30pmET.  Traders are expecting a gain of 14k jobs last month.

• USDJPY: Dollar/yen is trading with a soft tone heading into NY trade this morning, but this comes after some decent gains were scored in Asian trade overnight, and so we’re now trading just marginally higher versus yesterday’s close.  Chart resistance at the 111.60s capped prices.  Chart support in the 111.30 continues to hold.  We think yesterday’s inability for the S&Ps to break out is pause for concern here.  The Fed’s tone this afternoon will undoubtedly set the tone for stocks and USDJPY for the rest of the week.  Note that liquidity will be thinner than normal in Asian trade tonight as Japanese markets will be closed for a holiday.

Tune in @EBCTradeDesk for more real-time market coverage.

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Charts: TWS Workspace

About the Author

Erik Bregar - Director, FX Trading

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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