Action Insight Mid-Day Report
Dollar Rebound Fails after Disappointing GDP, FOMC Next
Some volatility is seen in early US session after mixed data from US, ahead of FOMC. Dollar tried to rebound after the release of much stronger than expected ADP employment report which showed 130k job growth in the private sector in Jan, comparing to expectation of 45k. However, the attempt quickly fades after disappointing Q4 GDP result which showed merely 0.6% annualized growth rate, slowest pace in five years, sharply lower from prior quarter's 4.9% and even weaker than expectation of 1.2%. Personal consumption also slowed sharply from 2.8% to 2.0%.
But after all, main focus today is on the FOMC rate announcement. Economists generally expect a 50bps cut from Fed today bringing the federals rate down to 3.00%. In addition to the actual announcement, the vote split as well as the accompany statement will be closely watched. Some new faces will be voting for the decision today, with FOMC's regular annual rotation. Rosengren, a relative dove on inflation, will be replaced by Plosser, a resolute anti-inflation hawk. Fisher and Pianalto; both also have reputations as hawks on inflation and Stern, a neutral, will also rotate in. Markets will look into the voting pattern and the balance of hawks and doves in the new fed
The statement, as usual will be heavily scrutinized for hints on next policy change. In particular, markets will look into chance in Fed's description of the financial markets. The Fed said that broader financial market conditions have continued to deteriorate and credit has tightened further in last week's statement.
Markets are pricing greater chance of a 50bps rate cut from Fed today and such expectation is reinforced by today's disappointing GDP report. And, if that's the case, the federal fund rates will be reduced to 3.50%, which is closer to the Japan (0.50%) then to Australia (6.75%).
In other news, Deputy Prime Minister Abdullah bin Hamad al-Attiyah said that Qatar is studying a plan to revalue the riyal following the slump in the U.S. dollar. Mervyn King was today reappointed as governor of BoE a spokesman for another five years. Swiss Jan KOF leading indicator fell to a two year low of 1.70 pts from revised 1.84 pts in Dec.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.4743; (P) 1.4770; (R1) 1.4803; More
EUR/USD edges further higher to 1.4817 but lacks follow through buying yet. Upside momentum continues to diminish as seen in 4 hours MACD. Nevertheless, further rally is still in favor as long as 1.4658 support holds. Retest of 1.4921 resistance should be seen, with prospect of further rise to 1.4966 record high and 1.5 psychological resistance. However, below 1.4658 will turn short term outlook neutral first and probably bring deeper decline to 1.4508 support.
In the bigger picture, a medium term top is in place after EUR/USD failed 1.5 psychological resistance. Subsequent price actions from 1.4966 is so far still bounded inside established range of 1.4309 and 1.4966, suggesting it's merely developing into sideway consolidation rather than a deep correction. Having said that, it's too early to conclude whether the consolidation has completed or not until a firm break of 1.4966/1.5 key resistance zone. And further choppy sideway trading could still be seen. On the downside, break of 1.4365, however, will indicate that a deeper fall is in progress for 1.4014 support before completing the consolidation.
Also, with 1.3581 resistance turned support remains intact, medium term up trend from 1.1639 is still in force. Regardless of internal structure, it is treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high) and has just failed 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004 target which overlaps with 1.5 psychological resistance. Sustained trading above 1.5 key resistance will confirm the medium term up trend has resumed to next projection target of 100% projection at 1.7048.