Forex Signals Brief March 18: Will the FED Announce A June Rate Cut?

The day started with the Bank of Japan’s decision to cut interest rates, leading to a strong “sell the fact” reaction for the yen. While some market participants may have expected a more committed stance towards a hiking cycle, corporate Japan is likely displeased with both higher interest rates and a weaker currency. USD/JPY initially stalled but eventually found support as risk sentiment improved, rallying before encountering resistance at the 150.96 level.

The Reserve Bank of Australia (RBA) also held its meeting and adopted a dovish tone, causing the Australian dollar to decline by 60 pips. Additionally, short-term US interest rates decreased following weaker Canadian CPI data, prompting speculation about the driving forces behind stickier US inflation, especially considering the recent decline in US used auto sales.

The Canadian dollar initially experienced a 40-pip drop to its yearly lows, sending USD/CAD to new highs for 2024, but later stabilized and returned to pre-data levels, supported by movements in oil prices and equities. However, upbeat February readings and January revisions for the US Building Permits and Housing Starts also played a role in sending this pair higher.

Today started with an event from China. The People’s Bank of China (PBoC) is anticipated to keep its Loan Prime Rate (LPR) unchanged. This comes after the central bank made two larger-than-expected cuts to its Reserve Requirement Ratio (RRR) and 5-year LPR recently. Additionally, Chinese inflation data released last weekend surpassed forecasts significantly, with the headline year-on-year reading reaching 1.0% and the core year-on-year measure climbing to 1.2%. Given these developments, the PBoC may not see the need to implement further interest rate reductions at this time.

In the European session, the UK Consumer Price Index (CPI) is projected to be 3.6%, down from the previous 4.0%, while the month-on-month (M/M) measure is expected to rise to 0.7% from the previous -0.6%. The Core CPI year-on-year (Y/Y) figure is forecasted to be 4.6%, compared to the previous 5.1%. However, there is no consensus on the M/M figure at the moment, despite the previous reading of -0.9%. Market expectations suggest the first rate cut may occur in August, but a significant miss in the CPI data, particularly for services inflation, would likely be needed to shift pricing towards a rate cut as early as June.

Later in the evening, the Federal Reserve is expected to maintain interest rates in the range of 5.25% to 5.50%. The focus will be on the economic projections and the dot plot. Significant changes are not anticipated, as the central bank aims to retain flexibility and avoid overreacting to recent inflation data. If the dot plot shifts from projecting three to two rate cuts this year, the market could perceive it as a hawkish surprise. However, Fed Chair Powell may mitigate the impact during the press conference by adopting a more neutral tone and emphasizing that decisions are contingent on incoming economic indicators. Conversely, if the dot plot suggests three rate cuts, Powell may adopt a more hawkish stance to counterbalance it.

Yesterday the price action was slow again in most assets as traders remain on the sidelines with the approach of the FOMC meeting later in the evening. So we only opened two trading signals, while we already had some running trades from Monday. We closed only two trading signals which ere opened last week.

Last week, gold experienced a decline after reaching a new record high in the preceding week, leading the XAU/USD pair to drop to $2,152, establishing a support zone. Despite repeated purchase signals issued against this support zone, the price has revisited it, suggesting a potential break below $2,150 this week. Indeed, this support level was breached yesterday following a decline in XAU/USD. However, the price has rebounded once more, with moving averages now acting as resistance levels.

EUR/USD exhibited resilience over the course of approximately a month, marking a gain of 300 pips. However, buyers faced repeated challenges in driving the EUR/USD price above the 1.10 level last week. Despite attempts to push the price higher this week, a reversal occurred, indicating a depletion of buyer momentum. Subsequently, the Euro experienced a significant decline of over 100 pips, with sellers pushing the price below the 100 SMA (Simple Moving Average) following a 50-pip downturn yesterday.

EUR/GBP – 240 minute chart

Bitcoin (BTC) experienced significant volatility last week, soaring to a new all-time high above $73,000 early in the week. Meanwhile, Ethereum (ETH) continued its upward trajectory, breaching the $4,000 milestone. Despite a subsequent bearish reversal, ETH found support above the 50-period Simple Moving Average (SMA) on the H4 chart, attracting buyers and leading to a rebound. Ethereum reached a new yearly peak of $4,100 before retracing back below $4,000. Towards the end of the week, Bitcoin faced selling pressure, slipping below $65,000 on Saturday. The selloff continues and BTC is now heading for $60,000 again.

BTC/USD – 240 minute chart

ETH (Ethereum) sustained its upward momentum last week, despite encountering a bearish reversal after surpassing the significant $4,000 milestone. However, ETH managed to find support above the 50-period Simple Moving Average (SMA) on the H4 chart, which served as a crucial technical indicator. This support level attracted buyers, leading to an increase in the price of Ethereum. ETH reached a new yearly peak of $4,100 earlier in the week. However, it subsequently retraced its gains and dropped to $3,500 on Monday, while yesterday sellers pushed ETYH below the 200 SMA as well, which was the last one.

ETH/USD – 240 minute chart