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Market Outlook

All Eyes on Wednesday's FED meeting

During the week gone by, Brexit grabbed all the headlines as it was a “deal or no deal”. In the initial meeting on Monday between UK and EU nothing materialised diminishing expectations of any sort of agreement that resulted in GBPUSD dropping to a low of 1.3320 till Thursday. On Friday there was renewed optimism of a deal getting clinched. Pound climbed 200 pips to reach a high of 1.3520 only for sellers to resurface as a lot of questions on Brexit were yet to be answered, the Irish border being the primary issue.

Gold remained under pressure for the entire week due to an ascending dollar and the coming week’s highly likely Fed rate hike. Gold shed $25/oz. to finish the week at $1248/oz., much lower than the 200dma at $1267/oz.

EURUSD too was strained by an increasing dollar as it breached the support at 1.1800. It was only on Friday that Euro succeeded in finding crucial support following a rather dismal jobs report. Average hourly earnings crucial to inflation were lower than projected creating uncertainty regarding rate hikes in FY 2018.

USDJPY followed US yields and rate hike forecasts as it shot above the trend line resistance at 112.60 and a former high of 113.00 to wind up the week at 113.33.

USDCAD traded down during the week’s start as CAD was lifted by the previous week’s robust GDP growth and jobs statistics. Wednesday’s Bank of Canada monetary report gave investors a reason to cheer but the bank’s statement about its anxieties over geopolitical happenings and trade rules lowered CAD as USDCAD rallied up to end at 1.2840.

The upcoming week has 3 important interest rate announcements from the UK, EU and US.

The US interest rate verdict is being perceived to be a foregone decision with the markets already overlooking this rate increase by the Fed. However, markets will be keenly watching the essence of the monetary declaration to be able to form an idea of what Fed’s outlook for future rate increases are.

BoE and ECB are expected to keep the rates firm, with the fine print being monitored for cues at what the banks may have in mind.

Gold winded up the previous week on a rather frail footing. There is scarce support in Gold until $1217. Commitment of traders’ report demonstrated that the market has cut down its extended positions by 43,524 lots while adding shorts by 20,733. Gold could go down to its specified support levels ahead of the Fed meeting and then recover later in a ‘sell the news buy the fact’ kind of setup.

EURUSD still has its optimistic outlook firmly in place even after being unsuccessful in hanging on to 1.1810 last week. Firm support can be found at 1.1700 levels and with Europe showing robust growth & with the Merkel situation unlikely to deteriorate any further EURUSD should find strong support in the week ahead.

GBPUSD would be a more difficult call in the weeks ahead as it would be greatly impacted by any news about Brexit.

USDCAD’s main cause of concern would be BAFTA discussions and crude oil price moves. OPEC’s extension of production was what the market predicted but raised levels of long positions in the energy bloc will deter additional upsurge. Downturn in oil prices is unfavourable to CAD. USDCAD has good resistance at 1.2920 that would be hard to breach until on Wednesday Fed comes up with a hawkish shock.