EUR/USD: Markets Expect Hawkish Yellen On Friday, Will She Disappoint?
- St. Louis Federal Reserve President James Bullard said that US labour markets are relatively tight and may put upward pressure on inflation. Bullard noted that there was a divergence between the financial market's expectations for US interest rate rises and the median projections among Fed policymakers. He said: “Market-based forecasts of FOMC policy envision almost no normalization, whereby the policy rate would be changed only a few times in the next several years.”
- Dallas Federal Reserve Bank President Robert Kaplan said he would support raising interest rates in the "near future," though a vote by Britain on whether to leave the European Union will weigh on any Fed rate decision in June.
- Minneapolis Federal Reserve Bank President Neel Kashkari said on Wednesday that negative interest rates, used by central banks in Europe and Japan to stimulate their economies, would only be a last resort for the US central bank.
- Fed Chair Janet Yellen is due to speak on Friday, and could reinforce expectations that the central bank might raise interest rates as early as next month, or July. In our opinion the market counts on hawkish comments announcing a rate hike in June, any dovish hint may trigger a stronger sell-off in USD. That is why we placed EUR/USD bid at 1.1080 today. If the order is filled the target will be at 1.1425 and stop loss at 1.0980.
GBP/USD: British GDP Growth Slowed On Business Investment Fall
- The Office for National Statistics confirmed that growth in the British economy slowed to 0.4% in the January-March period.
- The Office said the economy grew by 2.0% versus a year ago, below expectations that the data would confirm an initial estimate of 2.1% annual growth in the first quarter. Business investment was weaker than expected, slackening by 0.4% year-on-year in the first quarter after rising 3.0% in the fourth quarter of last year. Business investment also declined compared with the fourth quarter although the 0.5% decline was less steep than a 2.0% fall between October and December 2015
- Weak trade figures again dragged on growth, leaving consumers as the economy's drivers. The services sector, which makes up 80% of the UK economy, showed signs of losing steam.
- The Bank of England has said uncertainty hanging over the June 23 referendum was crimping investment, especially in the commercial real estate sector where transactions dropped 40% in the first quarter of this year.
- Weaker GDP growth is not a surprise given all the uncertainty surrounding the referendum. We do not change our trading strategy. Our short-term bid is at 1.4570, we stay bullish in the long term.
EUR/CAD: Stay Short For 1.4100
- The Bank of Canada kept interest rates on hold on Wednesday, saying the economy would shrink in the second quarter as a result of damage from recent wildfires in Alberta before rebounding later in the year.
- The bank kept interest rates at 0.50%, as widely expected, saying it expected to see a rebound in the third quarter as oil production restarted and reconstruction began. Overall, the Canadian economy's adjustment to the lower price of oil is uneven, the central bank said. Although business investment and intentions remain disappointing, first-quarter growth appears to be in line with the bank's 2.8% forecast from April.
- Recent economic indicators suggest the United States, Canada's main trading partner, will see solid growth this year despite weakness at the start of 2016, the bank said. Improved growth south of the border is key to the bank's outlook as it hopes to see stronger demand for Canadian exports.
- The central bank said the housing market is continuing to show strong regional divergences and household vulnerabilities have moved higher.
- The central bank's preliminary assessment is that the fires and related suspension of oil production will trim about 1.25 percentage points off real GDP growth in the current quarter. In its last forecast in April, the bank had projected 1.0% growth for the quarter.
- The BoC statement was not as dovish as some investors were expecting. The second quarter is going to come in a lot weaker in the Canadian economy, but the central bank expects the growth should rebound in the third quarter.
- Our short- and long-term EUR/CAD outlook is bearish. We are also looking to sell USD/CAD. We have lowered our sell order on this pair to 1.3050.
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