While some traders booked profits after the FOMC sparked a strong dollar selloff, it seems that most of the anti-dollar rallies that took place yesterday were mere retracements. For instance, GBP/USD managed to pull back to the 1.5250 area not because of strong data but most likely because of profit taking at 1.5150. This could be a chance to catch the ongoing downtrend at a much better price as the Fed stays committed to its idea of withdrawing asset purchases soon. There are no major reports due from the United States today so the FOMC's sudden turnaround in monetary policy could continue to lift the Greenback. Take note that Fed official and FOMC voting member Powell is set to give a speech today and, if he confirms the Fed's change in bias, we could see more dollar rallies towards the end of the week.
Weaker than expected euro zone PMI figures triggered a fresh round of euro selling during yesterday's trading. The French manufacturing PMI came in at 43.6, lower than the 43.9 estimate, while the services PMI landed at 42.7 instead of climbing to 44.5. Germany's manufacturing PMI rose from 49.8 to 50.1, but fell short of the consensus at 50.4. Their services PMI slipped from 55.7 to 54.1, way below the estimate at 55.5. Overall, the region's manufacturing PMI dipped to 47.8 from 47.9 while the services PMI slumped from 48.6 to 47.3 instead of rising to 49.2. This pushed EUR/USD to a new monthly low as traders speculated that the contraction in both manufacturing and services sectors of euro zone's largest economies could translate to a deeper economic slowdown. The German Ifo business climate figure is set for release today and this could provide a clearer assessment of the business conditions in euro zone's top economy. Another weak figure, or one that is lower than the estimated 104.9 reading, could trigger a stronger euro selloff.
While the pound seemed to be able to recover against the U.S. dollar during yesterday's trading, this may have been simply a result of profit-taking at the 1.5150 area. Fundamentals remain weak in the U.K. as the BOE is still committed to increase asset purchase if necessary, even at the expense of stronger inflationary pressures. There are no reports due from the U.K. today, which suggests that pound pairs could resume their downtrend if traders view the retracement as a chance to hop in at better prices.
Bleak European sentiment seems to be weighing on the Swiss franc so far as euro zone and the U.K. have been showing signs of a slowdown. This seems pleasing to the SNB as they have expressed their commitment to keep the franc's value down. However, as other countries in Europe are slowing down, the Swiss franc could once again emerge as the safe-haven currency in the region.
USD/JPY is nearing the bottom of its range from 92.00 to 94.00 as the pair is currently trading close to 92.50. This could inspire a fresh round of yen-selling as traders might want to close off their long yen positions while waiting for Abe to appoint the next BOJ head. If the next central bank governor shows an inclination for further asset purchases or actual intervention in the currency market, the yen could rally back up to the 94.00 mark and beyond. No reports are due from Japan today.
Commodity Currencies (AUD, CAD, NZD): Bearish
While commodity currencies struggled to hold ground against the U.S. dollar, the sentiment for these higher-yielders is still bearish as their central banks seem to favor loose monetary policy. Australia suffered a bout of weak economic data lately and traders could keep pricing in expectations of an RBA rate cut for the first week of March. Meanwhile, RBNZ head Wheeler talked about the damaging effects of the Kiwi's strength on New Zealand's export-driven economy. Lastly, BOC Governor Carney retracted most of his hawkish remarks during the previous BOC rate decision. In addition, his upcoming exit could leave the BOC with one less hawk, possibly tipping the scale to a more bearish BOC rhetoric.
by Kate Curtis of Trader's Way