FOMC Meeting And Dutch Elections In Focus

News and Events:

Fed set to increase borrowing rates by 25bps

There is almost no doubt no that the FOMC will announce a tightening of its monetary policy this evening, especially considering the relative solid job report that was released last Friday. Yet the FOMC’s confidence seem to be based more on sentiment indicators and massive rally in equity markets rather than actual economic data. While there have been bright spots, lagging inflation data and weak real wage growth suggest not everything US economic is humming. It’s likely that the rhetoric from the Fed and sudden repricing of the policy path with three 25bp hike in 2017 is overdone. We suspect that growing possibility that growth will remain subdued longer than market expectations. The fact that real wage growth actually went negative indicates that fear of inflation surging is unlikely and that the recent pickup in the headline gauge was mostly driven by the recovery of commodity prices.

We are convinced that Fed members will restrain themselves from releasing a hawkish statement and forecast that would heightened market’s expectations. The Fed over the last few months, the Fed has been modifying slightly its communications in favour of a more neutral ton, which gives the Fed the freedom to adjust its communication to the incoming economic data. We believe Janet Yellen will adopt a cautious ton and wording as the US economy is still in a recovery process. Therefore, the risk is mostly on the downside for the USD.

Dutch Elections – Further Uncertainty Risk

Wednesday 15th March brings a critical litmus test of the European political landscape. The Dutch general elections will provide a gauge of the populist sentiment in the Eurozone. The race between the mainstream VVD party and anti EU PVV party remains close. According to recent polls, PVV had lost ground yet events surrounding Turkey’s President Erdogan, might have inflamed immigrant issues, supporting the PVV policy stance. Yet, due to the nature of the political structure of the Netherlands even a resounding PVV victory is unlikely to have immediate implications for the EU and Euro. The reason is that the mainstream parties that the PVV need to build a coalition have ruled out forming a government with Geert Wilders, suggesting that the VVD will continue to head any coalitions. Of course this is politics 2.0 and anything can happen (a strong showing by PVV entices parties to reverse alliances or PVV will become diminished by the historically liberal nation). However, regardless of the actual outcome the key result is likely to indicate a fragmented government and sustained threat to EU. For markets this is the biggest immediate risk, a Brussels frozen by uncertainty. Any gains in Euro (due primarily to shifting expectations for ECB monetary policy) will likely be tempered by the politically landmine filled event calendar. A positive outcome in the Netherlands will only lead to French and German elections and now the destabilizing potential Scottish independence referendum.

EUR/CHF remains the key FX trade to hedge an anti EU outcome. This morning, there was no clear trend across EUR crosses. The pound sterling was the best performer against the single currency as it reversed yesterday’s sharp losses. EUR/GBP eased to 0.8697 after failing to break the 0.8785 resistance. The closest support can be found at 0.8591 (50dma).

Today’s Key Issues (time in GMT):

• Feb PPI MoM, last -0,50% DKK / 08:00
• Feb PPI YoY, last 4,10% DKK / 08:00
• Feb Central Gov’t Budget Balance, last 11.43b TRY / 08:00
• Feb Producer & Import Prices MoM, exp 0,40%, last 0,40% CHF / 08:15
• Feb Producer & Import Prices YoY, exp 1,80%, last 0,80% CHF / 08:15
• Riksbank’s Ingves Speaks in Frankfurt SEK / 08:30
• Jan Retail Sales MoM, exp 0,20%, last -0,50% EUR / 09:00
• Jan Retail Sales YoY, exp 0,80%, last -0,20% EUR / 09:00
• Feb Claimant Count Rate, last 2,10%, rev 2,20% GBP / 09:30
• Feb Jobless Claims Change, last -42.4k, rev -41.4k GBP / 09:30
• Jan Average Weekly Earnings 3M/YoY, exp 2,40%, last 2,60% GBP / 09:30
• Jan Weekly Earnings ex Bonus 3M/YoY, exp 2,50%, last 2,60% GBP / 09:30
• Jan ILO Unemployment Rate 3Mths, exp 4,80%, last 4,80% GBP / 09:30
• Jan Employment Change 3M/3M, exp 87k, last 37k GBP / 09:30
• Jan General Government Debt, last 2217.7b EUR / 09:30
• ECB’s Praet speaks in Frankfurt EUR / 09:30
• 4Q Employment QoQ, last 0,20% EUR / 10:00
• 4Q Employment YoY, last 1,20% EUR / 10:00
• 1Q BER Business Confidence, last 38 ZAR / 10:00
• Feb CPI FOI Index Ex Tobacco, last 100,6 EUR / 10:00
• Feb F CPI EU Harmonized YoY, exp 1,60%, last 1,60% EUR / 10:00
• Mar FGV Inflation IGP-10 MoM, exp 0,20%, last 0,14% BRL / 11:00
• Jan Retail Sales Constant YoY, exp 1,10%, last 0,90% ZAR / 11:00
• Jan Retail Sales MoM, exp 0,20%, last -2,30% ZAR / 11:00
• mars.10 MBA Mortgage Applications, last 3,30% USD / 11:00
• Mar Empire Manufacturing, exp 15, last 18,7 USD / 12:30
• Feb CPI MoM, exp 0,00%, last 0,60% USD / 12:30
• Feb CPI Ex Food and Energy MoM, exp 0,20%, last 0,30% USD / 12:30
• Feb CPI YoY, exp 2,70%, last 2,50% USD / 12:30
• Feb CPI Ex Food and Energy YoY, exp 2,20%, last 2,30% USD / 12:30
• Feb CPI Core Index SA, exp 251,155, last 250,783 USD / 12:30
• Feb CPI Index NSA, exp 243,416, last 242,839 USD / 12:30
• Feb Real Avg Weekly Earnings YoY, last -0,60%, rev -0,50% USD / 12:30
• Feb Real Avg Hourly Earning YoY, last 0,00%, rev 0,10% USD / 12:30
• Feb Retail Sales Advance MoM, exp 0,10%, last 0,40% USD / 12:30
• Feb Retail Sales Ex Auto MoM, exp 0,10%, last 0,80% USD / 12:30
• Feb Retail Sales Ex Auto and Gas, exp 0,20%, last 0,70% USD / 12:30
• Feb Retail Sales Control Group, exp 0,20%, last 0,40% USD / 12:30
• mars.13 CPI WoW, last 0,00% RUB / 13:00
• mars.13 CPI Weekly YTD, last 0,90% RUB / 13:00
• Feb Existing Home Sales MoM, last -1,30% CAD / 13:00
• Bank of Italy Governor Visco Speaks at Milan Event EUR / 13:45
• Mar NAHB Housing Market Index, exp 65, last 65 USD / 14:00
• Jan Business Inventories, exp 0,30%, last 0,40% USD / 14:00
• mars.10 DOE U.S. Crude Oil Inventories, exp 3133k, last 8209k USD / 14:30
• mars.10 DOE Cushing OK Crude Inventory, exp 500k, last 867k USD / 14:30
• mars.15 FOMC Rate Decision (Upper Bound), exp 1,00%, last 0,75% USD / 18:00
• mars.15 FOMC Rate Decision (Lower Bound), exp 0,75%, last 0,50% USD / 18:00
• Federal Reserve Board Chairwoman Janet Yellen holds a news… USD / 18:30
• Jan Net Long-term TIC Flows, last -$12.9b USD / 20:00
• 4Q GDP SA QoQ, exp 0,70%, last 1,10% NZD / 21:45
• 4Q GDP YoY, exp 3,20%, last 3,50% NZD / 21:45
• Feb Foreign Direct Investment YoY CNY, exp -4,20%, last -9,20% CNY / 23:00

The Risk Today:

EUR/USD continues to strengthen despite ongoing bearish consolidation. Hourly resistance given at 1.0679 (16/02/2017 high) has been broken while hourly support at 1.0493 (22/02/2017 low). The technical structure suggests deeper increase towards resistance at 1.0874 (08/12/2017 high). In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD continues to edge lower despite ongoing consolidation since the pair has broken support given at 1.2254 (19/01/2017 low). The road is wide-open for further decline. Hourly resistance is now given at 1.2300 (05/03/2017 high). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY is pushing higher towards key resistance given at 115.62 (19/01/2016 high). Hourly support can be found at 113.56 (06/03/2017 low). Expected to push higher. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is still riding within uptrend channel and is on its way to monitor support implied by lower bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Hourly support is given at 1.0075 (13/03/2017 low). Expected to consolidate. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.