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Federal Reserve Raises Interest Rate by 25 BP

A guest post written by DAR Wong

Currency Market Observations – 26 March 2018

Fundamental Outlook

The U.S. Federal Reserve raises interest rate for the first time in 2018 and after Powell became the chairman. Fear of global trade war initiated by U.S, Government plummet the stock market prices. Bank of England holds policy unchanged but hint rate hike could be coming in May.

The U.S. existing home sales rose 5.54 million in February, highest in past 3 months. Another report on trade deficits widened in Q4 with USD128 billion, worse than USD101 billion deficits in previous quarter.

The U.S. order for durable goods rose 3.1 percent in February on monthly basis, while core durable goods excluding the transport equipment grew 1.2 percent. Both data are above forecast. Weekly claims at 229,000 for the week ended 17 March and matched expectation.

On the FOMC meeting held on last Wednesday (America hour), the Federal Reserve raised 25 basis points and increased FED fund rates to 1.50 – 1.75 percent. Policymakers have revised the GDP growth for 2018 to 2.7 percent and 2.4 percent growth in 2019.

President Trump slaps import tariff on Chinese goods worth USD60 billion and indirectly declares a trade war. Most farm commodities and equity markets declined before the weekend for fearing more counter actions to be announced by China soon.

German ZEW sentiment that measures institutional confidence grows at 5.1 in March and lowest in 17 months. Another report on Ifo business climate that measures the manufacturers, wholesalers and retailers, at 114.7 in March and matched consensus.

U.K. consumer prices expanded 2.7 percent in February from a year ago and lowest in 7 months. Producer prices slid 1.1 percent on monthly comparison, beneath par for the first time in 8 months.

U.K. average earnings rose 2.8 percent in January, best record since November 2016. Claimant counts for jobless benefit rose 9200 in February. Unemployment rate poised at 4.3 percent in January.

Bank of England holds rates unchanged at 0.5 percent. Policymakers hint there might be rate tightening in coming May.

Technical Forecast

USD/JPY has dropped after U.S. credit tightening due to investors seeking Yen as safe haven. This week, we reckon the market will fall further with resistance acting on 105.60 – 106.00 area. In case of breaking the 104.00 support, we do not foresee anymore buying interest until the trend reaches 100.00 benchmark.

EUR/USD moved in small range around 1.2350 last week as market attention focused on Gold and USD/JPY trends. This week, we predict the Euro trend will begin to rise while being supported at 1.2300 area. First target may aim at 1.2550 when the bulls gather new momentum.

GBP/USD traded higher last week but market momentum has slowed down at 1.4150 level. This week, we forecast the range will be moving from 1.4000 – 1.4250 region amid mixed sentiment. No clear direction is seen until the trend breaks out of the aforementioned range.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

 





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