US markets were lifted by housing data and Russian president Putin's comment that he's not going to further split Ukraine. The Dow and S&P 500 extended this week's rebound. Nonetheless, the positive sentiments didn't carry on to Asian session as investors are getting cautious ahead of FOMC announcement. Major Asian indices fluctuated between gains and loss. Released in Asia today, Japan trade deficit narrowed to JPY -1.13T in February but was larger than expectation of JPY -0.89T. New Zealand current account deficit narrowed to NZD -1.43b in Q4. Australian Westpac leading indicator dropped -0.1% mom in February.
Overall, the forex markets are stuck in tight range for the moment as consolidations continued. Though, we'll keep an eye on a few pairs for larger movements today. Firstly, GBP/USD will face tests from UK job data and BoE minutes today and strength in EUR/GBP could drag it lower. Secondly, Canadian dollar was pressured by BoC governor Poloz's comment overnight and we might seen an upside breakout in USD/CAD today. Thirdly, Aussie is quietly building up some strength against the greenback there could be some follow through buying should risk sentiments turn more positive today.
UK events will be the main focus in European session. Claimant count is expected to drop -25k in February while unemployment rate is expected to be unchanged at 7.2%. BoE will also release meeting minutes. Sterling is the relatively weakest European majors this week. EUR/GBP extended recent rebound and is pressing 0.84 handle for the moment. GBP/USD also dipped below 1.6568 support overnight as consolidation from 1.6822 extended but EUR/USD and USD/CHF were kept in tight range. Further rally in EUR/GBP could drag down GBP/USD today. Meanwhile, Swiss will also release ZEW expectation today.
The Fed is expected to continue with measured tapering and reduce the size of monthly asset purchase by another USD 10b to USD 55b. And the reduction would be evenly split between treasuries and MBS. A main focus is whether Fed would update the forward guidance and move from a quantitative threshold of 6.5% unemployment to something qualitative. In particular, the questions will be on how long Fed would keep rates low, and, once the rate hike starts, how will that go. Fed will also release updated economic projections. In that last forecasts, 12 of 17 officials didn't expect rate hike until 2015, at 0.75% by end of 2015 and below 1.75% by end of 2016. Traders will be particularly interested to see if there is any chance to this projections. Also to be released during US session are Canadian wholesale sales and US current account balance.
Canadian dollar took a dive overnight after BoC governor Poloz's comments that first quarter growth will be on the "soft side". Meanwhile, he expected the February inflation data to be released this Friday to be softer, due to a sharp movement in February last year. While he reiterated BoC's neutral policy stance, Poloz also said he cannot rule out a rate cut from the current 1.00% level "if the balance of risks were to shift so that the risks on the downside for inflation were increased". USD/CAD has been bounded in range below 1.1223 since late January. Based on the structure and duration of the pattern, we might be seeing a breakout soon.