Week Ahead: Beware The Ides Of March: Or Will Yellen Scupper The Rally?
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
The nascent recovery in risk sentiment has entered a more mature phase on the back of the fresh easing measures by the ECB and the indications of additional stimulus at the National People’s Congress, China’s legislature.
The upcoming March Fed meeting could put the risk rally to the test, however. We expect improving US data and easier US financial conditions of late should allow Fed Chair Yellen to maintain a relatively constructive outlook on the economy. The Fed should lower its rate projections as well to account for the growing global risks, but by less than expected by the markets.
A relatively more hawkish rate forecast and Yellen’s constructive assessment should signal the Fed’s confidence in the US recovery, but could also point to tighter financial conditions ahead and weigh on risk sentiment.
Risk-correlated and commodity currencies could therefore lose ground again against USD. NOK should be particularly vulnerable ahead of the Norges Bank, where we expect another 25bp cut.
Elsewhere, little seems to be expected from either the BoJ or the SNB. CHF and JPY could still underperform the EUR as investors continue to cut shorts in response to indications that the ECB is done cutting rates for now.
EUR/USD should trade top heavy going into Yellen’s statement, with longer-term risks still on the downside. The BoE should keep its outlook little changed for now.
With many negatives in the GBP price by now, we maintain a constructive near-term outlook on the currency.
What we’re watching
Editorial: Is the ECB done easing and what does it mean for EUR?
FX Focus – CAD, NOK and oil: beware the pending correlation breakdown – The main drivers will remain the dovish outlook for the BoC and Norges Bank and the fragile risk sentiment.
USD – A more hawkish Fed could make a case for additional USD upside.
NOK – We expect the Norges Bank to cut the deposit rate to 0.50%.
GBP – We anticipate no dovish surprise from the BoE next week.
JPY – More time is needed for the BoJ before considering additional policy action. The JPY should continue to be driven by risk sentiment.
source