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All eyes on the FED

No change is expected in the policy rate from the 30-31 January FOMC meeting. Currently the market seems to have priced in the probability of the FOMC to remain on hold, at 95.0% as implied by the Feds Funds Futures . Thus market focus is expected to shift to the accompanying statement. We see the case for an upbeat assessment of the economy, despite the recent slowdown of the GDP growth rate. It could be the case, that a more hawkish tone will dominate the statement in order for the Fed to accommodate a possible rate hike in March. At this point, please be advised that the Feds Funds Futures currently imply a probability of 82% for a rate hike in March. Overall the US Dollar could strengthen, especially should the tone support the forward guidance of three rate hikes in 2018. Finally, please note that this will be Chair Janet Yellen’s last FOMC meeting. Also a number of the FOMC members will change as part of the Feds rotating system. It could be the case that the FOMC will have a more hawkish tone from now on as a result of that switch.

The EUR/USD moved in a sideways manner yesterday, staying well within the range set by the 1.2355 support line and the 1.2495 resistance line. The pair could continue to trade in a sideways manner over the short term, however there could be some selling pressures as the US Dollar may strengthen with the release of various financial data and the FOMC rate decision. Also the EUR side of the pair could weaken as financial data, due out today could weaken the EUR. Should the pair come under selling interest we could see it breaking the 1.2355 support level and aim for the 1.2230 support barrier. Should it come under buying interest, we could see it breaking the 1.2495 resistance level and aim for the 1.2600 resistance hurdle.

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Economic highlights for the rest of week (1/29/2018)

During the US session we get the US Personal Consumption Expenditure index for December and later on New Zealand’s Trade Balance also for December.

On Tuesday, we get Germany’s HICP rate and the US Consumer Confidence.  On Wednesday, all eyes will be on the Fed as the FOMC will decide on it’s interest rate.

An the star of the week, will come on Friday, as the US Employment report for January will be released with the Non-Farm Payroll figure and is expected to move the market.

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Progress in the NAFTA negotiations

Officials seem to have made some progress regarding the NAFTA Agreement and a will hold a press conference, most probably, later on today. US Trade representative Lighthizer stated that he is hopeful about the talks however realizes that a lot of work needs to be done. Meanwhile, media report, that a collapse in the NAFTA agreement could hurt heavily US farmers, highlighting the US interests in keeping the NAFTA agreement alive. On other news, Canadian plane maker Bombardier Inc. won a major U.S. case on Friday, as U.S. court rejected a Boeing complaint. Government officials, stated that the court ruling underscores the importance of free trade at a time when the NAFTA negotiations move at a slow pace. Mexico Economy minister Guarjado said that, there is a window of opportunity to strike a deal from February to July and it could be implied that negotiations could continue beyond the deadline of March and close to the Mexican elections. We expect any positive news or outcome of the negotiations to strengthen USD, CAD, MXN, as all three economies have to gain on a win-win-win situation.

The USD/CAD moved in sideways manner in the past few days, staying mostly below but close to the 1.2350 resistance line. We see the case for the pair to continue to trade in a sideways manner in the short term, with a light bearish tone, as it could remain under the downward trend line which started to formulate since the 19th of December. Should the bulls take the reins on the pairs direction we could see it breaking the 1.2250 support line and aim for the 1.2100 support level. Should the bulls take the driver’s seat we expect the pair to break the 1.2350 resistance line and maybe even break the 1.2450 resistance zone.