Fed Cuts Rates by 50bps, BoC Takes the Central Bank Torch

Fed Delivers the First Emergency Cut Since the 2008 Crisis

The dollar continued trading lower against all but one of the other G10 currencies on Tuesday and during the Asian morning Friday. It lost the most ground against SEK, AUD and JPY, while it eked out some gains only versus CAD.

USD/JPY — Technical Outlook

USD/JPY continues to drift lower, trading below a short-term downside resistance line taken from the high of February 21 st. Yesterday, the pair found some support near the 106.85 hurdle and rebounded somewhat. Although we may see a bit more correction to the upside, as long as the rate remains below that downside line, the bearish pressure could stay there for a while. However, in order to get comfortable with further declines, we would like to see a drop below the above-discussed hurdle first.

Will the BoC mimic the FOMC and Deliver a Double Cut?

As for today, the central bank torch will be passed to the Bank of Canada. At its latest gathering, the Bank kept interest rates unchanged, but the statement had a dovish flavor, suggesting that officials have opened the door to a rate cut. They removed the part saying that it is appropriate to maintain the current level of interest rates and instead noted that “In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast”.

EUR/CAD — Technical Outlook

Last week, EUR/CAD sharply accelerated to the upside and continued to drift in that direction this week as well. But looking at our oscillators, the RSI and the MACD on the 4-hour chart, we are starting to notice that the buying momentum is slowly fading away and we may see a bit of correction lower. That said, given that the Canadian dollar is still on the weaker side against its major counterparts, EUR/CAD may resume its uprise and go for another higher high. For now, we will stay cautiously-bullish.

As for the Rest of Today’s Events

We get the Eurozone, the UK and the US final Markit services and composite PMIs for February and are expected to confirm their initial estimates. Again, market participants may pay more attention to the US ISM non-manufacturing PMI, which is expected to have declined to 54.9 from 55.5. Such a slide is unlikely to raise concerns with regards to the performance of the US economy, but a negative surprise, perhaps below 50, could most probably do.



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