The Federal Reserve speeds up its quantitative tightening, and this is certainly bullish news for the USD. At the same time, this is a negative factor for the American stocks, which have entered their seasonally worst month.
Weekly Forex Outlook: Mar. 5-9
The USD index approached, but then turned down and closed the week at 90.00. US President Donald Trump announced last week that he plans to impose tariffs on steel and aluminum imports and raised fears of s global trade war. This is bad news for the USD, especially against the Japanese yen. USD/JPY formed a very bearish candle last week and may now test 104.75 and 103.80. Pay attention to how China responds to the US tariffs talk. Increase in trade tensions will make USD/JPY slide more.
In Europe, German Chancellor Angela Merkel has secured a fourth term after the Social Democrats voted to stay in her government. This certainly reduced political uncertainty. Yet, traders still await the final outcome of Italy’s election. According to the data we have now, the euro skeptics got good results, although no single party has a decisive majority. As a result, there’s a risk of a hung parliament and more uncertainty ahead.
Resistance for EUR/USD lies at 1.2475 and 1.2600, while support is at 1.22. A decline below this level will open the way down to 1.20.
As for GBP/USD, the outlook isn’t very bright. Theresa May’s Brexit speech didn’t bring confidence. There are problems with negotiations between Britain and the EU. Below 1.38, the pair risks going down to 1.3650 and 1.3500.
This is going to be a week of central bank meetings and important economic releases.
The Bank of Canada will meet late on Wednesday. The regulator is expected to keep the interest rate unchanged as Canadian economic growth slowed more than expected. At the same time, analysts still think that the BOC will raise rates twice more this year. The BOC Governor will speak on Thursday.
The European Central Bank will meet on Thursday. The odds are that the ECB won’t start signaling an end of asset purchases this time. This makes the EUR vulnerable to declines during Mario Draghi’s press conference. The central bank will also update its economic forecasts, but they are unlikely to offer many surprises as growth and inflation are broadly on the same path as before.
The Bank of Japan on Friday is expected to maintain its current policy despite the stronger performance of the national economy. In addition, on Friday there will be a release of Nonfarm Payrolls – US jobs data. For the USD to strengthen, we need an improvement in average earnings data. On the contrary, if this indicator disappoints – even if NFP comes outs strong – we’ll likely see the USD decline.
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