EURUSD surges after the FOMC decision
approximately 400 pips higher after the Fed, despite dropping “patient”,
lowered its interest rate trajectory and downgraded its view on
economic growth and inflation. EURUSD
moved above the near-term downtrend line taken from back the peak of
the 26th of February to hit resistance at 1.1045 (R2), close to the
61.8% retracement level of the 26th of February – 13th of March decline.
Subsequently the pair retreated to trade below 1.08000. Although an astonishing rally, it is far from a trend
if actual > forecast (or previous data) = good for currency (for CHF in our case)
[USD - Philly Fed Manufacturing Index] = Level of a diffusion index based on surveyed manufacturers in Philadelphia. It's a leading indicator of economic health - businesses react quickly
to market conditions, and changes in their sentiment can be an early
signal of future economic activity such as spending, hiring, and
Philly Fed Index Unexpectedly Shows Modest Drop In March
Manufacturing activity in the Philadelphia region has increased at a
modest pace in the month of March, according to a report released by
the Federal Reserve Bank of Philadelphia on Thursday, although the index
of regional manufacturing activity unexpectedly showed a slight
The Philly Fed said its diffusion index of current
activity edged down to 5.0 in March from 5.2 in February. While a
positive reading indicates continued growth in manufacturing activity,
economists had expected the index to climb to 7.0.
AUDIO - Goodbye "Patience" with Tillie Allison
Wednesday started off looking like a typical down day, nice gap down,
nice trend down.. then the 5’3” sorceress of the markets, Janet Yellen
decided to remove the word “Patience” from her comments and the markets
went NUTS! Tillie and Merlin take a look at how this impacts the markets going forward, including bonds, equity markets, currencies and more.
Euro Correction Already Over?
intraday volatility continues (based on dailyfx article)
The question on everybody’s mind after yesterday’s Fed inspired squeeze
on USD long positons is whether that was it and the dollar can now
resume higher or does the correction have more room to run? Judging by
the action this morning it seems the market is scared of missing out on
the next leg higher in the Greenbck as several pairs have already
returned to pre-FOMC levels. Only time will tell whether this is the
case, though it would be unusual to not see at least a period of minor
consolidation first after such extreme volatility. In the euro, the
1.0550 area looks key with traction under this zone needed to confirm
that a downside resumption is indeed underway. A move back over 1.0920
would warn that the correction has more room to run.
EURUSD: A Crazy 900-Pip "Roundtrip" (based on elliottwave article)
This week, we saw exactly what Jim had
warned about: the craziest volatility in euro-dollar (EURUSD) we've seen
in years. To be exact, last time EURUSD jumped 400-500 pips in one day
was back in 2008. But the latest price action topped that: Not only did
the euro rally almost 500 pips on Wednesday, but on Thursday it gave up
almost all of those gains -- for an almost 900-pip "roundtrip":
point, everyone is in the same trade, like they are now in the euro
short. Then it reaches the point of exhaustion: There is nobody left to
sell the euro. Then
somebody will start covering -- and before you know it, it's like Black
Friday at your local Wal-Mart: Everyone is trying to squeeze through the
same door at the same time. The coming EURUSD rally will be like that." Jim Martens, Editor of Currency Pro Service
if actual > forecast (or previous data) = good for currency (for CAD in our case)
[CAD - Retail Sales] = Change in the total value of sales at the retail level. It's the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
Canadian retail sales dropped at a steeper-than-anticipated pace in January, reaching the lowest level in 10
months, on a decline in receipts from gasonline stations.
Retail sales decreased 1.7% to a seasonally adjusted 41.36 billion Canadian dollars ($32.50 billion) in January,
Statistics Canada said Friday, whereas market expectations were for a 0.8% decline, according to economists at Royal
Bank of Canada.
The euro is going bananas (based on businessinsider article)
The euro is climbing against the dollar again on Friday, rising more than 1.7% to as high as $1.085 as of around 12:40 pm ET.
The euro spiked against the dollar when the Fed's latest decisions
came out, as the US central bank looked less likely to hike rates in
June (which would typically strengthen the dollar).
As it stands so far, the euro's depreciation bottomed out five days
ago, below $1.05. A lot of people are still expecting parity by the end
US Dollar Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Neutral
The Federal Open Market Committee (FOMC) meeting
this past week certainly set off fireworks in the financial market. Yet,
the outcome didn’t follow the simple path rate watchers would have
expected. Now, with volatility further magnified; we find the Dollar wavering on its record-breaking, eight-month bull trend.
Did the market overshoot on its speculative forecast for the Greenback
before the central bank clarified its position – either pricing in a
faster pace than was reasonable or perhaps pushing more premium than
just the monetary policy differential would confer? Have the speculative
‘weak hands’ already been flushed from the system? And, will risk
trends start to contribute to the curerncy’s fundamental picture in the
Looking back at the Fed meet this past week, there
weren’t many ‘surprises’. The headlines were focusing in particularly on
whether the group would include or strike the term ‘patient’ in
reference to their timing for normalizing monetary policy. It was
popularly understood that the word was equivalent to a more than
three-month time frame before the central bank would consider a rate
hike. Having been removed, the ‘mid-2015’ (some say June) first rate hike is more probable.
Another meaningful change was the downgrade in
growth, inflation and interest rate forecasts. In their updated
forecasts, the Committee lowered a the 2015 GDP view to 2.3 – 2.7
percent (from 2.6 – 3.0), the 2015 inflation range to 0.6 – 0.8 percent
(from 1.0 to 1.6) and December’s expected benchmark rate level to 0.625 percent (from 1.125).
These are significant changes that could lower the ‘curve’ (or
projected pace of tightening), but there was limited speculation of a
swift pace to begin with. Furthermore, the moderation in this data does
little to offset the communication effort by the Fed to acclimatize the
market to an approaching hike. And yet, timing of the first hike
assessed by Fed Funds futures was pushed even further back, to November.
The Dollar’s waffle after the policy update is likely a flush of an excessive market exposure. We’ve
seen the currency far outpace other markets that are theoretically
connected to rate forecasts (Treasury yields, Fed Fund futures, monetary
markets). Having established such a remarkable and obvious trend, it is
likely speculative interests that fell outside of the fundamental
rational were drawn in. With the policy update, those focused on
short-term momentum were easily shaken. The question is whether the
excess has been worked from the market. Wednesday’s tumble was severe in
both price and volume, but it didn’t even break the USDollar’s 8-month
There is likely a large
pocket of tactical traders who would quickly abandon the Dollar long
view should it slip further or even stall for an extended period.
Yet, despite the risk of a short-term long squeeze, the fundamental
backdrop would still support the medium-term bullish lean for the
currency. Whether the Fed realizes a hike in June or October, its
hawkish view – much less its timing – is far more incisive than its
What is perhaps even more remarkable from this past
week, was the swell in risk appetite following the Fed decision. Even a
delay to the start of a tightening regime still clarifies the central
bank’s ability and intention to raise rates. That reverses a course of
years of increasing accommodation to draw risk out of the market and
encourage investing. Yet, to a market with an increasingly shorter time frame for positioning, it offers a quick opportunity. The trouble is, what will the mentality be after that speculative swing is over?
For milestones to gauge policy and risk trends moving forward; watch
event risk such as the CPI data, the laundry list of Fed Speeches
(including Yellen’s address on Friday) as well as international topics –
like Greece’s financial problems.
USDJPY Fundamentals (based on dailyfx article)
Fundamental Forecast for Japanese Yen: Neutral
In light of the market reaction to the Federal Open Market Committee’s (FOMC) March 18 meeting, the fundamental developments coming out of the world’s largest economy may continue to dictate the near-term price action for USD/JPY as Janet Yellen and Co. shows a greater willingness to retain the zero-interest rate policy (ZIRP) beyond mid-2015.
With that said, a slowdown in Japan’s Consumer Price
Index (CPI) may have a limited impact on the dollar-yen especially as
the Bank of Japan (BoJ) largely endorses a wait-and-see approach, while
the U.S. data prints may foster increased volatility in the exchange
rate as market participants continue to speculate on the Fed’s first
rate hike. An uptick in the core U.S. CPI paired with an upward revision
in the 4Q Gross Domestic Product (GDP) report may heighten the appeal
of the greenback, but the disinflationary environment may become a
growing concern for the central bank as the core Personal Consumption
Expenditure (PCE), the Fed’s preferred gauge for price growth, is
expected to slow to 1.1% from 1.4% in the three-months through
The fresh forecasts coming out of the central bank suggests that FOMC
will further delay its normalization cycle as the committee pushes out
its interest rate dot-plot, and the Fed may sound more dovish heading
into the second-half of the year amid the uncertainties surrounding the
global economy. In turn, the dollar remains at risk of facing additional
headwinds over the coming months, and the near-term pullback may
ultimately turn into a larger correction should the U.S. data prints
fail to meet market expectations.
As a result, the near-term topping process around
the 122.00 handle may pave the way for a further decline in USD/JPY, and
the pair may continue to give back the advance from earlier this year
as the Relative Strength Index (RSI) fails to retain the bullish trend
carried over from back in January. The downside break in the oscillator
favors the approach to ‘sell bounces’ in the dollar-yen, but the pair
may face choppy price action going into the key event risks as market
participants continue to digest the latest developments coming out of