27 Jan 2015
Steady Fed and a strong ECI may boost USD strength – Westpac
FXStreet (Barcelona) - The Research Team at Westpac prefers staying long USD for the week and month ahead, expecting a steady Fed and a strong ECI to boost USD strength.
Key Quotes
“This FOMC meeting should go down as a placeholder given nagging question marks around forward guidance were addressed at the last meeting when the Fed dropped “considerable time” in favour of “patience” with respect to normalisation, and the US data has by and large matched expectations in the interim. The statement is likely to see at most a couple cosmetic changes and Fed will of course repeat that it can be patient in beginning to normalise the stance of policy.”
“A steady Fed message, essentially reinforcing expectations for a mid-2015 lift off date would arguably count as a hawkish development, given the increasingly dovish tilt from other central banks (e.g. the unexpected Bank of Canada rate cut, the 9-0 vote from the BoE MPC, ECB QE and the growing risk of an RBA easing).”
“Known US data for Q4 suggests growth will have a “3” handle while the ECI should disabuse those thinking US wage pressures are non-existent (recall Dec payrolls revealed a 0.2% fall in hourly earnings and downward revisions to prior months). The ECI by contrast has come above expectations for two quarters in a row and does not suffer from the same compositional problems as average hourly earnings.”
“A steady Fed message and an ECI print at least as strong as consensus should see the USD extend gains yet further. We stick with a long USD bias for the week and month ahead.”
“Technical: The DXY is challenging a significant long term resistance level at 95.86 (long term cloud / long term Fibonacci retracement). This is reason to be cautious while resistance caps price. A break would be a significant positive medium and long term trigger.”
Key Quotes
“This FOMC meeting should go down as a placeholder given nagging question marks around forward guidance were addressed at the last meeting when the Fed dropped “considerable time” in favour of “patience” with respect to normalisation, and the US data has by and large matched expectations in the interim. The statement is likely to see at most a couple cosmetic changes and Fed will of course repeat that it can be patient in beginning to normalise the stance of policy.”
“A steady Fed message, essentially reinforcing expectations for a mid-2015 lift off date would arguably count as a hawkish development, given the increasingly dovish tilt from other central banks (e.g. the unexpected Bank of Canada rate cut, the 9-0 vote from the BoE MPC, ECB QE and the growing risk of an RBA easing).”
“Known US data for Q4 suggests growth will have a “3” handle while the ECI should disabuse those thinking US wage pressures are non-existent (recall Dec payrolls revealed a 0.2% fall in hourly earnings and downward revisions to prior months). The ECI by contrast has come above expectations for two quarters in a row and does not suffer from the same compositional problems as average hourly earnings.”
“A steady Fed message and an ECI print at least as strong as consensus should see the USD extend gains yet further. We stick with a long USD bias for the week and month ahead.”
“Technical: The DXY is challenging a significant long term resistance level at 95.86 (long term cloud / long term Fibonacci retracement). This is reason to be cautious while resistance caps price. A break would be a significant positive medium and long term trigger.”