Dollar Extends Pre-FOMC Pullback, Four Central Bank Meeting Featured This Week

Dollar weakens broadly today as markets await a busy week ahead with four central bank meetings. Fed is widely expected to hike interest rate by 25bps this week. However, such expectation should be fully priced in, traders are looking through the FOMC meeting and turning cautious. In particular, Fed’s updated Summary of Projections (SEP) and the monetary policy outlook for the rest of the year would be crucial to Dollar’s trend in near term. Technically, the dollar index could dip further towards 100.66 key near term support before FOMC announcement on Wednesday.

BoJ, BoE, SNB to meet

In addition to FOMC meeting, BoJ, BoE and SNB will announce monetary policy decisions this week. All are scheduled for Thursday and thus, we’ll have a 24 hours of central bank frenzy from Wednesday to Thursday. All, BoJ, BoE and SNB are expected to stand pat. BoJ is expected to maintain the so called yield curve control framework. BoE’s bias would likely stay neutral but may adjust its view on upside risks in inflation. The SNB is expected to leave its sight deposit rate unchanged at -0.75%. These three central bank announcements could end up being non-events.

Oil slump could drag down CAD

Oil’s extended decline is a development to watch in the financial markets this week. WTI crude oil dips to as low as 47.9 so far today, comparing to 54.94 high made last month. Oil price is current reversing the rally triggered by OPEC’s agreement to cut production since December. It’s now being weighed down by the surge in US productions and slower than expected fall in global supplies. WTI crude oil could now dip further to 44.07 fibonacci level. And that’s possibly a factor to push USD/CAD through 1.3598 key resistance.

Elsewhere…

Japan domestic CGPI dropped -3.2% yoy in February, well below expectation of 1.0% yoy. Machine orders rose 1.0% mom in January, above expectation of 0.0% mom. Tertiary industry index rose 0.0% mom in January versus expectation of 0.2% mom. The rest of the calendar is light together with US labor market condition index featured.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3418; (P) 1.3466; (R1) 1.3512; More…

Intraday bias in USD/CAD remains neutral for the moment as the consolidation from 1.3534 continues. Deeper retreat could be seen back to 4 hour 55 EMA (now at 1.3391). But downside should be contained by 38.2% retracement of 1.3008 to 1.3534 at 1.3333 and bring another rally. Above 1.3534 will turn bias to the upside for retesting 1.3598 high next.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg, started from 1.2460 is likely still in progress and could target 61.8% retracement of 1.4689 to 1.2460 at 1.3838. We’d look for reversal signal there to start the third leg. Break of 1.2968 wold at least bring at retest of 1.2460 low. However, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Economic Indicators Update