EUR/USD: Short squeeze after widely expected Fed hike?
EUR/USD: Fed hike is widely expected today, eyes on dot plot
Macroeconomic overview
The Fed is going to raise rates again today and the move has been well telegraphed. With the futures market pricing in more than a 90% chance that it would raise interest rates, investors' main focus turned to what the Fed's statement on Wednesday will say about the pace of hikes this year.
In our opinion the updated Summary of Economic Projections is unlikely to show any major changes compared to December. With no new details on a potential stimulus, Committee members will likely continue to project around 2% GDP for the coming years, while the jobless rate will go down to 4.5%, and inflation hits 2% over the medium term.
We expect a further upward shift in “the dots” – albeit without necessarily moving the median dots, which currently indicate three hikes for each of 2017, 2018 and 2019. But, in particular, the Committee members, who had the most dovish outlook thus far, may have ramped up their interest rate projections towards the median.
The dot plot, which is published after each Fed meeting, shows the projections of the 16 members of the Federal Open Market Committee.
U.S. inflation data cemented rate hike expectations. U.S. producer prices rose more than expected last month, marking the most robust year-on-year gain in nearly five years. index for final demand increased 0.3% last month after rising 0.6% in January. In the 12 months through February, the PPI jumped 2.2%, the biggest advance since March 2012 and ahead of the market forecast at 2.0%. It followed a 1.6% increase in January. A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3% in February, the biggest gain since April 2016. The so-called core PPI rose 0.2% in January. Core PPI increased 1.8% in the 12 months through February after advancing 1.6% in January.
The Netherlands will vote today in an election that was seen as a test of anti-immigrant sentiment, even before a rift with Turkey at the weekend put immigration and nationalism at the top of the political agenda.
Technical analysis
Yesterday’s EUR/USD drop was stopped at 14-day exponential moving average, which is positively aligned. Today we see a recovery from yesterday’s move. Technical analysis suggests that the near-term outlook remains slightly bullish. But technical analysis indications will be overshadowed by Fed's dot plot forecasts today.
Trading strategy
We think that a short squeeze and profit taking on USD-long positions is likely after widely expected Fed move. We think that the EUR/USD may go up to at least 1.0714 (Monday’s high). A close above this level will open the way to full retracement of February drop. We stay EUR/USD long.
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Macroeconomic overview
The Fed is going to raise rates again today and the move has been well telegraphed. With the futures market pricing in more than a 90% chance that it would raise interest rates, investors' main focus turned to what the Fed's statement on Wednesday will say about the pace of hikes this year.
In our opinion the updated Summary of Economic Projections is unlikely to show any major changes compared to December. With no new details on a potential stimulus, Committee members will likely continue to project around 2% GDP for the coming years, while the jobless rate will go down to 4.5%, and inflation hits 2% over the medium term.
We expect a further upward shift in “the dots” – albeit without necessarily moving the median dots, which currently indicate three hikes for each of 2017, 2018 and 2019. But, in particular, the Committee members, who had the most dovish outlook thus far, may have ramped up their interest rate projections towards the median.
The dot plot, which is published after each Fed meeting, shows the projections of the 16 members of the Federal Open Market Committee.
U.S. inflation data cemented rate hike expectations. U.S. producer prices rose more than expected last month, marking the most robust year-on-year gain in nearly five years. index for final demand increased 0.3% last month after rising 0.6% in January. In the 12 months through February, the PPI jumped 2.2%, the biggest advance since March 2012 and ahead of the market forecast at 2.0%. It followed a 1.6% increase in January. A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3% in February, the biggest gain since April 2016. The so-called core PPI rose 0.2% in January. Core PPI increased 1.8% in the 12 months through February after advancing 1.6% in January.
The Netherlands will vote today in an election that was seen as a test of anti-immigrant sentiment, even before a rift with Turkey at the weekend put immigration and nationalism at the top of the political agenda.
Technical analysis
Yesterday’s EUR/USD drop was stopped at 14-day exponential moving average, which is positively aligned. Today we see a recovery from yesterday’s move. Technical analysis suggests that the near-term outlook remains slightly bullish. But technical analysis indications will be overshadowed by Fed's dot plot forecasts today.
Trading strategy
We think that a short squeeze and profit taking on USD-long positions is likely after widely expected Fed move. We think that the EUR/USD may go up to at least 1.0714 (Monday’s high). A close above this level will open the way to full retracement of February drop. We stay EUR/USD long.
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