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This was the message we took away from yesterday's FOMC press conference. Judging by the FX market's reaction in the Asian session - traders also view that the Fed will likely keep rates on hold of the future biosphere. USD selling was the only trend that participants were considering with the greenback weakening across the board.
EURUSD took out the 1.4800 barrier with little resistance heading further on its directional march to 1.4882. AUDUSD surged to new highs of 1.0980 as yield-starved traders piled into the commodity and interest rate differential trade.
Local Asian currencies were accumulated against the USD. However there was limited chatter about any role of Asian central banks in smoothing the one-sided trade - it looks as if the bankers are going to wait this one out. USDCNY got into the action as well - fixing 45 pips lower at 6.5051.
For traders to get their hands on the CNY, look to the HKD to serve as a good proxy for the CNY. The HKMA's Chan stated that the HKD interest rate may rise before the Feds. While generally the HKMA follows the Fed, there has been historical examples of monetary policy divergence. While this has limited effect on the USD peg, a leveraged yield never hurt.
As was universally expected, the FOMC held rates at 0-00-0. 25% while committing to continuous QE2 until June with no dissenting votes cast. The inaugural press conference was devoid of surprises. Fed Chairman Bernanke's was committed to keep Fed rates exceptionally low for an extend period of time (stating an 'extended period' was a 'couple of meetings'), seeming unconcerned about 'transitory' inflation and even suggested that he would be willing to accept a level of inflation to help support the recovery in the labor market.
The Fed will carry on the $600bn asset-purchasing program until June and will reinvest maturing mortgage-backed securities & treasuries to maintain the balance sheet constant (any decrease would be a defacto tightening). The overall dovish tone shifted the rate curve to the right with the markets only pricing in 40bp of tightening in the next 12 months. As we have stated, we suspect that the Fed is willing to play a dangerous game with the US economy and has no intention of tightening (in any shape or form) and wants to further base the USD.
Elsewhere, the RBNZ left the official cash rate unchanged at 2.5%. In the accompanying statement, the MPS was undoubtedly dovish and stressed that the economy remains very attempt following the earthquake Christchurch NZ.
In Japan, March nationwide core CPI (excluding fresh food) was in line with consensus, falling 0.1% y/y while Industrial Production dropped 15.3% m/m - much worse than expected (10.6% was the prediction). We suspect that Japanese inflation will increase due to the earthquake and higher fuel / material prices going forward, but it's unlikely that the BoJ's monetary policy will tighten any time soon. The BoJ kept policy unchanged at 0-0. 1% and JGBS purchases will maintain at a pace of approximately 1.8 trillion JPY per month.
As for today, real US GDP will be the data print to watch. The number is expected to slow to 1.8 vs. 3.1 (prior reading) and judging from Bernanke's reserved reaction to growth issues last night, the risk is skewed toward further downside. Should the US economy point to further erosion, look for the USD to come under further selling pressure. Keep a further eye on the discrepancy growing between stock prices and commodities - historically its an indicator that a short-term reversal for risk-correlated FX trades.
07: 55 EUR Germany Unemployment Rate his (Apr) % USD GDP (Annualized): 12: 30 (Q1 A12: 30 USD Initial Jobless Claims (Apr - 23) lvl 405 K 403 K 395 K 12: 30 USD Fed's Duke, William Speak14: 00 USD Pending Home Sales (Mar) m-o-m 2.00% 2.10% 1.50% 00: 00 Russia): Interest rate announcement, 8.25 Exp, 8.00 EUR ECB's Mersch Speaks prior00: 00EurUsd The combination of yesterday's bullish engulfing candlestick on the daily chart and Bernanke's dovish press conference has allowed EURUSD to rampage higher; bursting through the roof of its 2-month uptrend channel to highs of 1.4882. We are now poised just below the 1.4905 resistance level (7 Dec 2009 high), but beyond there we have a clear shot at the hugely significant 1.5000 level. Should the rally proceed even further, the occurrence of historic resistance levels ahead becomes much less common, and indeed the next one would be all the way up at 1.5144 (Nov 25, 2009 high). In the meantime, expect buyers on dips to lurk around 1.4770 (overnight pullback low), 1.4634 (yesterday's low), and 1.4485 (20 Apr NY session low).
GbpUsd The bullish flag pattern we have been tracking it of GBPUSD hourly chart finally became active yesterday, prompting us to go long on the break of the upper boundary around 1.6500 flag. Impressively, the pair has since rocketed to highs of 1.6747; but given the length of the preceding flag pole, we are holding on for a target of 1.6935. In order to lock in some of the profits accrued over the past day, we trail our stop loss to 1.6600 levels to ensure that at the very worst, this pattern banks 100 pips of profit. Obviously, our aim is for the pattern to resume its upside trajectory in due course, and eye next resistance levels at 1.6766 (Nov 25, 2009 high) and 1.6878 (16 Nov 2009 high). Should we exceed the target, levels of 1.6950 notes above are at the 1.7000 psychological resistance and 1.7043 (5 Aug 2009 high). Expect buyers on dips to appear at 1.6620 (overnight pullback low), 1.6439 (Tuesday's low), 1.6385 (21 Apr low), and 1.6308 (20 Apr low).
UsdJpy The 3-week downtrend channel was finally broken yesterday, with USDJPY powering on to highs of 82.79, and a bullish engulfing candlestick appearing on the daily chart. Since then however, the pair has lost its momentum and pared back toward 81.60 levels lower. We think buyers will precipitate on a re-test of the form downtrend channel (currently comes in at 81.50), and given the presence of the bullish engulfing pattern, expect the pair to rebound back above 82.50 today. Should we be wrong, next media below are noted at 81.28 (yesterday's low), 80.96 (50% fibonacci tracing of 76.40 to 85.52), 80.51(1) (18 Mar low), bovine (17 Mar low) and then the all-time low 76.40. In the meantime, the key topside resistance is 82.79 (yesterday's high), 83.26 (18 Apr high), 83.79 (15 Apr high), 84.79 (12 Apr high) and 85.52 (6 Apr highs).
UsdChf There was a short-lived rebound rally for USDCHF yesterday, with the pair climbing to highs of 0.8832; However, the bears have quickly returned to drive the hand down towards the lows. As a reminder, the all-time low for USDCHF is the 0.8672 print set on Tuesday, but with a 1-month downtrend still in force, we feel it's likely we push even lower before the week is out. One reason for our very bearish bias is that below 0.8672, there are no previous support levels on the downside, and instead we are linking it purely psychological supports such as 0.8600, 0.8500 and 0.8400. In truth, the only psychological level that we'd put much weight on is 0.8500, so clearly it country to be short on this move lower. Should we experience a rebound, 0.8832 is now first resistance, then 0.8878 (22 Apr high), 0.9011 (19 Apr high), 0.9105 (11 Apr high), 0.9202 (7 Apr high), and 0.9296 (6 Apr high).
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot