· The dollar was under pressure on Tuesday, weighed by growing expectations the Federal Reserve would shift to a more accommodative policy stance this week and concerns about slower U.S. economic growth.
The dollar index, which measures the greenback against a basket of six major currencies, was a shade lower at 96.495, hovering close to a two-week low. The index has lost 1.2 percent after hitting a three-month high of 97.710 on March 7.
· Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said while the market is expecting more accommodative sentiments from the meeting, equity markets were unlikely to react positively to such a development.
“If the Fed really shows a gloomy outlook for growth and rates, then it’s also a negative for U.S. equities. Then that will be a negative for the dollar,” Yamamoto said.
· As the dollar took a breather, other major currencies advanced by default. The yen rose 0.1 percent to 111.27 yen per dollar, extending its gains to a third session.
The euro was down a tad at $1.1335.
· Ahead of the Fed meeting this week, the DXY Index’s forecast is still neutral. With US Treasury yields holding ground at the start of the week, the DXY Index has changed little in recent days. Price remains within an ascending triangle in place since November. It still holds that, with US Treasury yields having turned lower, the US Dollar is seeing its carry trade appeal deteriorate.
Both daily MACD and Slow Stochastics are trending lower out in bullish territory. Likewise, price is now below the daily 8-, 13-, and 21-EMA envelope, but the moving averages are not in bearish sequential order yet – another sign that a near-term neutral view remains valid.
· EUR/USD KEY LEVEL IS 1.1420
EUR/USD Elliott wave pattern can be interpreted as bullish or bearish. However, the key level for the bulls and bears is the February 28 high of 1.1420. So long as price remains below this level and more comfortably below the 78.6% retracement of 1.1368, then the bears have the upper hand. Above 1.1368 becomes an early warning signal that 1.1420 may break.
If EURUSD price moves above 1.1420, then we will consider a larger bullish move back towards 1.17-1.20 higher prob
· When Mr Bercow’s block crossed the wires, GBP/USD had already been drifting lower. This was partially due to a slightly higher US Dollar that trimmed losses from earlier in the session. The Greenback appreciated alongside front-end government bond yields, suggesting ebbing dovish bets ahead of this week’s highly-anticipated FOMC meeting. In fact, the risk for USD on the Fed may be tilted to the upside, posing as a risk for certain ASEAN currencies.
· Goldman Sachs says the Federal Reserve is likely to let inflation run higher than its 2 percent target.
The central bank has begun a monthslong review of its policy framework to consider alternative approaches to targeting inflation. Goldman believes the Fed will decide to allow overshoots of its inflation goal next year, which would take rate hike off the table.
"Our economists believe it is leaning toward adopting an average inflation targeting approach. If implemented, they believe this change would decrease the likelihood of further near-term policy tightening and lead to a small and gradual increase in both expected and realized price inflation," Goldman equity strategist Ben Snider said in a note.
· Such an accommodative policy change would make risk assets like stocks more appealing, Goldman said.
"Decreased odds of incremental Fed tightening would increase investor confidence in future discount rates as well as reduce the probability investors assign to recession occurring in the near term, supporting higher risk appetites," Snider said.
History has shown that slightly higher inflation would lift stock valuations as funds tend to flow from cash to equities as inflation expectations rise. In addition, there's a strong correlation between the S&P 500 forward price-to-earnings ratio and the breakeven inflation over the past 15 years, Goldman pointed out.
· Only two things will really matter when Federal Reserve Chairman Jerome Powell strides to the podium for his press conference on Wednesday after the end of the U.S. central bank’s latest two-day policy meeting: Dots and bonds.
That Powell and his colleagues will leave the Fed’s benchmark overnight interest rate unchanged in a range of 2.25 percent to 2.50 percent and stick to their pledge of a “patient” approach to monetary policy is effectively a given.
· India has the “best growth story” among global emerging markets, said J.P. Morgan’s head of equity research for Asia excluding Japan, as he pointed to relatively stable oil prices and positive earnings projections in the country.
In raising its rating on Indian stocks, Goldman Sachs said that foreign investors are coming back amid expectations of a more stable government and earnings growth.
India’s benchmark index Nifty 50 has shot up 8 percent in the past month, according to Goldman, and the investment bank expects earnings to grow 16 percent this year.
· Oil prices were near 2019 highs on Tuesday, supported by supply cuts led by producer club OPEC.
U.S. sanctions against oil producers Iran and Venezuela are also boosting prices, although traders said the market may be capped by rising U.S. output.
U.S. West Texas Intermediate (WTI) futures were at $59.10 per barrel at 0314 GMT, virtually unchanged from their last settlement and close to the 2019 high of $59.23 reached the previous day.
Brent crude oil futures were up 10 cents at $67.64 per barrel, also close to this year's peak of $68.14 reached late last week.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices fell just shy of breaking resistance in the 57.96-59.05 area. Meanwhile, negative RSI divergence continues to warn of a bearish reversal in the works. A daily close below support in the 54.55-55.66 area sets the stage for a test of the 50.15-51.33 zone. Alternatively, a confirmed break higher paves the way for a retest of trend line support-turned-resistance a trend line set from February 2016, now at 62.63.
Reference: Reuters, CNBC, FX Street, Daily FX
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