Investors Lock Gaze on FOMC and US GDP

Market sentiment remained largely supported due to the easing “stay at home” measures. In the currency world, the Aussie was among the main gainers following Australia’s better-than-expected CPIs. As for today, the spotlight is likely to turn to the FOMC decision and the 1 stestimate of the US GDP for Q1.

Risk Appetite Remains Supported, AUD Gains After CPIs

The dollar traded lower against all the other G10 currencies on Tuesday and during the Asian morning Wednesday. It lost the most ground against SEK, NZD, NOK and AUD in that order, while it underperformed the least versus JPY, GBP, CHF and EUR.

The weakening of the dollar and the strengthening of the commodity-linked currencies suggest that risk appetite may have remained supported for another day. Indeed, major EU indices were a sea of green, aided by a rally in banking shares following a 40% jump in UBS’sQ1 earnings and a 4.2% in Spain’s Santander. It seems that expectations have fallen so much due to the uncertainty surrounding the coronavirus, that anything less bad than anticipated is seen as a positive. The optimism due to several economies starting to loosen restrictive measures may have also helped. Wall Street indices traded in the red, pulled by slides in technology stocks. That said, it seems that flows were diverted into economically sensitive value stocks, as they have the potential to benefit more by the easing of lockdown measures. Risk appetite rebounded again during the Asian session today. Although Hong Kong’s Hang Seng closed virtually unchanged, China’s Shanghai Composite and South Korea’s KOSPI gained 0.23% and 0.73% respectively. Japanese markets were closed.

The Aussie was also among the main gainers, perhaps gaining extra ground after Australia’s better than expected CPIs for Q1. The headline rate moved to +2.2% yoy from +1.8%, above the lower end of the RBA’s target range, while the trimmed mean and weighted mean CPIs accelerated more than anticipated, to +1.8% and +1.7%, from +1.6% and +1.3% respectively.

When they last met, Australian policymakers left monetary policy unchanged and offered some details with regards to their QE program. They noted that they will do what is necessary to achieve a 3-year yield target of 0.25%, with the target expected to remain in place until progress is being made towards the goals for full employment and inflation. However, they added that if conditions continue to improve, it is likely that smaller and less frequent purchases of government bonds will be required.

After saying that interest rates have reached their effective lower bound at their prior meeting, the aforementioned points suggest that there is very little chance of expanding their QE program. On the contrary, they could soon scale it back if the spreading of the coronavirus continues to level off, and accelerating inflation is likely to make their work easier.

AUD/JPY — Technical Outlook

AUD/JPY continues to gradually drift higher, while balancing above a short-term tentative upside support line drawn from the low of March 19 th. This week, the pair managed to overcome its key resistance barrier, at 69.26, which was the previous highest point of April. As long as AUD/JPY stays above that upside line, we will remain on the positive side.

A further push north could bring the pair closer to the 70.30 barrier, which marks the low of March 3 rdand an intraday swing high of March 6 th. AUD/JPY could stall there for a bit, or even retrace back down slightly. That said, if the rate remains above the aforementioned upside line, the bulls may take charge again and lift the pair higher. If this time the 70.30 obstacle surrenders, the next potential resistance level to consider could be near the 71.51 area, marked by the high of March 3 rd.

On the other hand, if the previously-mentioned upside line breaks and the rate falls below the 69.00 hurdle, which is the high of April 23 rdand the low of yesterday, that may spook the bulls from the field temporarily and allow more bears to join in. However, we will still remain slightly cautious with the downside. For us to get slightly more comfortable with deeper extensions to the downside, AUD/JPY would have to drop below the 67.29 zone, which is the low of April 21 st. The next possible support area to consider could be the low of April 8 th, at 66.47.

FOMC and US GDP Data Enter the Limelight

As for today, the spotlight is likely to turn to the FOMC decision, as well as to the 1st estimate of the US GDP for Q1. This would be the first ordinary meeting since January, after which the Committee decided to proceed with a number of simulative measures, including cutting rates to the 0–0.25% range and unlimited amounts of QE purchases, to support the US economy from the coronavirus damages.

USD/CHF — Technical Outlook

Once again, USD/CHF got held near the 0.9800 barrier and retraced back down. From around the beginning of April that hurdle continues to provide strong resistance for the pair, which is not allowing the rate to go for a higher high. On the positive side, USD/CHF remains above its short-term tentative upside support line taken from the low of March 29 th. Although we may see a bit more downside in the near term, if that upside line stays intact, this could help the rate to rebound, hence why we will take a very cautiously-bullish stance overall.

If the pair slides below the 0.9720 support zone, which is marked near an intraday swing low of April 27 thand the low of April 28 th, this may clear the path to some lower areas. We will then examine a possible test of the aforementioned upside line, which if stays intact, could provide good support and allow USD/CHF to rebound. If so, the pair could travel back to the 0.9720 hurdle, a break of which might set the stage for a move to the 0.9755 obstacle, marked by an intraday swing high of April 28 th. Slightly above it lies another possible resistance level, at 0.9767, which s the high of April 27 th.

Alternatively, if the previously discussed upside line breaks and the rate slides below the 0.9668 zone, which is marked near the lows of April 21 stand 22 nd, this could attract more sellers into the arena. The pair might then drift to the 0.9655 obstacle, a break of which could open the door for a move to the 0.9622 area, marked by an intraday swing low of April 15 th. Initially, USD/CHF may stall around there for a bit, but if the bears are still feeling a bit more comfortable, a break of that area might push the rate to the 0.9590 level, marked near the lowest point of April.

As for the Rest of Today’s Events

From the US, apart from the FOMC decision and the GDP data, we also get pending home sales for March and the EIA (Energy Information Administration) weekly report on crude oil inventories. Pending home sales are expected to have slid 10.0% after rising 2.4% in February, while the EIA report is expected to reveal a 10.619mn inventory increase, following a build of 15.022mn.

Disclaimer:

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Copyright 2020 JFD Group Ltd.

Originally published at https://www.jfdbank.com on April 29, 2020.

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