Data For Feds Dual Mandate, USD Gains
Ipek Ozkardeskaya | Mar 30, 2015 07:35AM ET
This week, markets will recommence focus on the Feds path of monetary policy tightening. The removal of ”patience” from the Feds statement yet stresses policy setting on incoming data ("cautious optimism") has not provided additional clarity on timing. Fed Chair Yellen, last week restated her dovish view that any rate hikes will be at a “gradual pace”, has rather thrown markets back into their eternal speculation game. Since the last FOMC meeting, USD’s one directional bullish rally quickly reverse and predictions for EUR/USD parity hastily become challenge to 1.1114 resistance. But now its seems markets have realized they have overreacted in USD selling.
This week we will get a solid look at how the Feds dual mandate in progressing. For starters we have February Core PCE on Monday. Core PCE deflators should stay the same as Januarys read at 1.3 however, there is slight upside risk. Inflation remains subdued and a major concern to Fed members, despite accelerations in other areas of the US economy. Today we will also see how the US consumer is benefitingfrom the US recovery with data on spending and income. On the other side of the Fed priority list, we should get another healthy payroll report on Friday. Markets anticipate nonfarm payrolls to rise 250k and the unemployment rate to remain steady at 5.5%. Despite the strong labor markets, wage inflation has yet to pick up. Therefore keeping general inflation outlook benign and Feds hand from the hike trigger. In addition, to this week’s data, a deep schedule of Fed speakers might provide more hints as the timing and speed of rate hike. Although, there is a strong probability that we get a lot of noise. Markets hovering around a September rate hike however, we are more optimistic. We suspect that suggestions of data dependency might be more of a smokescreen to remove pressure from the USD. We are focused "special risks and other considerations" and developments including low interest rates that could prolong current secular stagnation. In addition, the Fed members have been downplaying the negative consequences of the strong USD yet clearly is can have a corrosive effect on US growth and create artificially tighten conditions. We still expect a July/September rate hike as Fed members will take advance of US and European growth (despite signs of US cooling) and to move towards a more normalized policy. We anticipated USD bullish rally to continue should data come in with no downside surprises. Failure to break 1.1040/90 resistance zone suggests a retest of 1.0504 (see Technical Report) support.
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| Today's Key Issues | Country / GMT |
|---|---|
| Mar KOF Leading Indicator, exp 89.1, last 90.1, rev 90.3 | CHF / 07:00 |
| Feb Net Consumer Credit, exp 0.9B, last 0.8B | GBP / 08:30 |
| Feb Net Lending Sec. on Dwellings, exp 1.6B, last 1.6B | GBP / 08:30 |
| Feb Mortgage Approvals, exp 61.5K, last 60.8K | GBP / 08:30 |
| Feb Money Supply M4 MoM, last -0.80% | GBP / 08:30 |
| Feb M4 Money Supply YoY, last -2.20% | GBP / 08:30 |
| Feb M4 Ex IOFCs 3M Annualised, exp 5.20%, last 5.50% | GBP / 08:30 |
| Mar Business Climate Indicator, exp 0.18, last 0.07 | EUR / 09:00 |
| Mar Industrial Confidence, exp -4, last -4.7 | EUR / 09:00 |
| Mar F Consumer Confidence, exp -3.7, last -3.7 | EUR / 09:00 |
| Mar Economic Confidence, exp 103, last 102.1 | EUR / 09:00 |
| Mar Services Confidence, exp 5.2, last 4.5 | EUR / 09:00 |
| Finance Minister Andersson Presents OECD Economic Survey | SEK / 11:30 |
| Feb Personal Income, exp 0.30%, last 0.30% | USD / 12:30 |
| Feb Industrial Product Price MoM, exp 0.90%, last -0.40% | CAD / 12:30 |
| Feb Personal Spending, exp 0.20%, last -0.20% | USD / 12:30 |
| Feb Raw Materials Price Index MoM, exp 4.50%, last -7.70% | CAD / 12:30 |
| Feb Inflation Adjusted Personal Spending, exp 0.10%, last 0.30% | USD / 12:30 |
| Feb PCE Deflator MoM, exp 0.20%, last -0.50% | USD / 12:30 |
| Feb PCE Deflator YoY, exp 0.30%, last 0.20% | USD / 12:30 |
| Feb PCE Core MoM, exp 0.10%, last 0.10% | USD / 12:30 |
| Feb PCE Core YoY, exp 1.30%, last 1.30% | USD / 12:30 |
| 27.mars Bloomberg Nanos Confidence, last 55 | CAD / 14:00 |
| Feb Pending Home Sales MoM, exp 0.40%, last 1.70% | USD / 14:00 |
| Feb Pending Home Sales NSA YoY, exp 8.70%, last 6.50% | USD / 14:00 |
| Mar Dallas Fed Manf. Activity, exp -9, last -11.2 | USD / 14:30 |
| Feb Building Permits MoM, last -3.80% | NZD / 21:45 |
| Feb P Industrial Production MoM, exp -1.90%, last 3.70% | JPY / 23:50 |
| Feb P Industrial Production YoY, exp -0.60%, last -2.80% | JPY / 23:50 |
EUR/USD Bullish momentum is fading. EUR/USD is weakening near the key resistance area between 1.1043 and 1.1114 (see also the declining trendline). Hourly supports can be found at 1.0768 (see also the 50% retracement) and 1.0613. An hourly resistance now lies at 1.0949. In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, any strength is likely to be temporary in nature. Strong resistances stand at 1.1114 (05/03/2015 low) and 1.1534 (03/02/2015 high). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).
GBP/USD Moving broadly sideways. GBP/USD has recently moved broadly sideways. However, the recent lower high and the breach of the hourly support at 1.4839 favour a bearish bias. Hourly supports can now be found at 1.4797 (27/03/2015 low) and 1.4689 (19/03/2015 low). A break of the hourly resistance at 1.4922 is needed to invalidate our bearish bias. Another resistance stands at 1.4990. In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low). Another strong support stands at 1.3503 (23/01/2009 low). A key resistance can be found at 1.5552 (26/02/2015 high).
USDJPY Continues to bounce. USD/JPY continues to bounce after the successful test of the support at 118.18 (61.8% retracement). Hourly resistances are given by 119.98 and the declining trendline (around 120.58). An hourly support lies at 118.93 (27/03/2015 low). A long-term bullish bias is favoured as long as the key support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 124.14 (22/06/2007 high) is favoured. A key resistance stands at 121.85 (see also the long-term declining channel).
USD/CHF Bouncing. USD/CHF has bounced near the support at 0.9450 (see also the 38.2% retracement). Hourly resistances can be found at 0.9695 and 0.9812. An hourly support now lies at 0.9558 (27/03/2015 low). In the longer-term, the bullish momentum in USD/CHF has resumed after the decline linked to the removal of the EUR/CHF floor. A test of the strong resistance at 1.0240 is likely. A key support can be found at 0.9374 (20/02/2015 low, see also the 200-day moving average).
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