FOMC Meeting Preview

TAKEAWAYS

•    US dollar firms slightly in caution before Fed rate decision
•    EUR/USD hovers at 1.19 despite huge February US retail sales data miss
•    Gold range-trades before FOMC meeting
•    WTI crude oil tops $65 again after surprise API inventories draw of 1M barrels
•    Dow Jones snaps 5-day win streak, Wall Street ends off record highs 
•    Asian, European stocks end higher but Russell 2000 drops -1.7% as rotation trades fade
•    Bitcoin rises over 56,000 in bounce off the lows of correction
•    Volkswagen stock soars nearly 30% after profit beat, promise to take on Tesla in EVs
•    Tesla falls over 4%
•    More countries suspend AstraZeneca vaccine
•    S&P affirms US AA+ credit rating with stable outlook

BEST CHART
EUR/GBP – H4 Candlesticks

 
Source: GKFX / MT4 (March 16, 2021)

EUR/GBP has dropped sharply away from a confluence of resistance from a falling trendline on the 4-hour chart and a 50% Fibonacci retracement of the decline since February 26. The bearish price action suggests a continuation of the downtrend below the multi-month low at 0.854.

GURU WISDOM

“Identify your problems but give your power and energy to solutions.” – Tony Robbins

MARKETS

*Daily closing price
↘ EUR/USD    1.1902        (-0.20%)
↘ GBP/USD    1.3894        (-0.03%)
↘ USD/JPY    109.0        (-0.12%)
↘ S&P 500    3962.71    (-0.16%)
↗ Hang Seng    29,027.69    (+0.67%)
↗ Gold        1732.49    (+0.10%)
↘ Oil (Brent)    68.50        (-0.55%)
↗ Bitcoin    56,621.3    (+1.76%)

NEWS

Given the surge in bond yields since the last Fed meeting and the recent action from the ECB to front-load its asset purchases, there is a lot hanging on the FOMC. The importance of the Fed was apparent in the muted reaction in forex markets to the large miss in February US retail sales data, which fell -3% vs the -0.5% expected.

No change in interest rates or the size of the Fed’s QE program are expected but there is a small chance the Fed makes some subtle changes to which bonds it will buy. The Fed is also releasing its economic projections including the so-called ‘dot plot’ showing where Fed members expect interest rates to be over the next 3 years. 

Were the Fed to shift its upcoming bond purchases towards the ‘long end’ of the yield curve, it would be to pull down benchmark 10-year US treasury yields. Lower US yields relative to other nations would drag the dollar lower (EUR/USD positive). 

Inaction from the Fed even if it comes with more dovish rhetoric from Fed Chair Jerome Powell that any rise in inflation is temporary, risks encouraging more bond-selling in preparation of QE tapering this year. This would especially be the case were the dot plot to signal a US rate hike in 2022, which would be dollar positive and likely tech stocks-negative.

DAY AHEAD 

*Times in GMT
10:00 Eurozone Consumer Price Index (YoY)(Feb)
12:30 Canada Consumer Price Index (YoY)(Feb) 
18:00 Fed Interest Rate Decision 
18:00 FOMC Economic Projections