The financial markets continued to price in change in forward guidance in the upcoming FOMC statement this week. To be specific, traders were expecting Fed to drop the word "patience" to pave the way for rate hike later in the summer. It's still far from certain whether the hike will happen in June or September, and at what pace policy normalization would be afterwards. That would be very much data dependent. Dollar bulls seemed to hesitate for a while after dollar retreated after initial attempt on 100 psychological. And, that was also accompanied by recovery in stocks. Nonetheless, the greenback gathered momentum again on Friday with the dollar index closing firmly above 100 handle. DJIA and S&P500 also closed near to the weekly lows.
The dollar index is still in progress for 61.8% retracement of 121.02 to 70.69 at 101.79. We'll stay to be cautious on topping when this fibonacci level is hit. But then, break of 98.65 support is needed to indicate short term topping first. And we'll assess the structure of the subsequent moves. Before that, outlook will stay bullish.
In the currency markets, euro remained the weakest one as ECB started the long awaited government bond purchase. Sterling seemed to be catching up with euro towards the end of the week. But it should be noted that the recovery in EUR/GBP looked weak and might not sustain long. Thus, we could see selling focus return to euro again. yen, Canadian and aussie hesitated against the dollar. Momentum in USD/JPY, USD/CAD and AUD/USD wasn't too convincing, thus to weakness in European crosses. However, we could possibly see them catch up soon after clearing out respective near term resistance and support levels decisively.
There are a number of central bank activities scheduled this week. FOMC is certainly the highlight. BoJ and SNB will also meet. Meanwhile, RBA, BoE and BoJ will release meeting minutes. In particular, BoE minutes might trigger some volatility in EUR/GBP. Here are some highlights
- Monday: Swiss PPI, retail sales; US empire state manufacturing, industrial production, NAHB housing
- Tuesday: RBA minutes; BoJ; German ZEW, Eurozone CPI final; US new residential construction
- Wednesday: Japan trade balance; UK job, BoE minutes; Swiss ZEW; FOMC
- Thursday: New Zealand GDP; Swiss trade balance, SNB; US jobless claims, Philly Fed survey
- Friday: BoJ minutes; UK public sector net borrowing; Canada CPI, retail sales
Regarding trading strategies, firstly, we stayed short in EUR/USD. The oversold condition in daily chart makes the current fall a bit stretched. Meanwhile, the pair could also be starting to lose some momentum as seen in 4 hours MACD. Thus, we will tighten up the stop to 1.0700. Meanwhile, we'll take profit at 1.0300, close to 1.0283 long term fibonacci projection level. Secondly, we stayed short in AUD/USD. The anticipation of a break of 0.7625 support was correct but that too brief to yield any meaning profit. However, overall, we're still expecting the down trend from 0.9504 to extend lower. Thus, we'll lower the stop to 0.7700 this week, which is close to our entry at 0.7739, and let the short position run. Thirdly, we also bought USD/CAD on break of 1.2662 last week. The break of 1.2797 resistance wasn't too convincing yet. But we'll also expect the uptrend from 1.0620 to extend. Thus, we'll stay long with tight stop at 1.2600.