Market Outlook

Market Outlook

All Eyes on FED

Brexit stole the headlines last week as it played out a “deal or no deal”. During the first meeting on Monday between UK and EU nothing concrete happened dampening hopes of a deal that saw GBPUSD hitting a low of 1.3320 by Thursday. It was not until Friday that the rays of hope started emanating of a deal getting done. Pound rose 200 pip to hit a high of 1.3520 only for sellers to remerge as many crucial questions on Brexit remained unanswered, Irish border being the main concern.

Gold continued to be under pressure for the whole week as it was pressured by rising dollar and next week’s almost done Fed rate hike. Gold lost $25/oz. to end the week at $1248/oz., well below the 200dma at $1267/oz.

EURUSD too was under pressure from rising Dollar as it broke through the support at 1.1800.It was not until Friday that Euro managed to find some support after a rather damp Jobs report. Average hourly earnings a key to inflation grew less than expected casting doubts about rate hikes in FY 2018.

USDJPY tracked US yields and rate hike prospects as it moved above the trend line resistance at 112.60 and previous high of 113.00to end the week at 113.33.

USDCAD traded down in the beginning of the week as CAD was buoyed by earlier week’s strong GDP growth and jobs data. Wednesday’s Bank of Canada monetary statement painted a rosy picture too but the bank stating that it’s worried about geopolitical developments and trade policies weakened CAD as USDCAD rallied up to close at 1.2840.

Next week has 3 major interest rate decisions from UK, EU and US lined up.

US interest rate decision is a long foregone conclusion with market already discounting this rate hike by the Fed. That being the case market will be monitoring the language used in the monetary statement to get an idea of what Fed’s plan for future rate hikes are.

BoE and ECB is widely expected to hold the rates steady, fine print being watched closely for hints at what the banks are thinking.

Gold ended last week on a very weak footing. There is not much support in Gold until $1217. Commitment of traders report showed that the market has reduced its long positions by 43,524 lots while increasing shorts by 20,733. Gold could dip to its stated support levels before the Fed meeting and then rally later in ‘sell the news buy the fact’ kind of scenario.

EURUSD still has its bullish picture intact even though it failed to hold on to 1.1810 last week. Very strong support exists at 1.1700 levels and with Europe area registering strong growth and with Merkel situation not set to worsen any further EURUSD should be well supported in the coming week.

GBPUSD would be a tougher call in the coming weeks as it would be highly influenced by news bits about Brexit.

USDCAD’s main cause of worry would BAFTA talks and Crude oil price action. OPEC’s extension of production delivered what the market expected but elevated levels of long positions in the energy bloc will hamper further rise. Fall in Oil prices is detrimental to CAD. USDCAD has very strong resistance at 1.2920 that would be tough to break unless on Wednesday Fed delivers a hawkish surprise.

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