US Fed raises interest rates for the first time this year
Fundamental outlook
THE US Federal Reserve raised the interest rate for the first time in 2018 and since Jerome Powell became Fed chairman. Heightened fears of a global trade war sent stock market prices downwards. The Bank of England (BoE) retained its policy but hinted a possible rate hike in May.
US existing home sales rose 5.54 million in February, the highest in three months. Trade deficits widened in 4Q at US$128 billion compared with US$101 billion deficits recorded in the previous quarter.
US order for durable goods rose 3.1 per cent in February on a monthly basis, while core durable goods excluding the transport equipment grew 1.2 per cent. Both data were above forecast. Weekly claims were at 229,000 for the week ended March 17, matching expectations.
During the Federal Open Market Committee (FOMC) meeting held last week, US Federal Reserve raised the interest rates by 25 basis points, increasing Fed fund rates to 1.5 to 1.75 per cent. Policymakers have revised the GDP growth for 2018 to 2.7 per cent and 2.4 per cent growth for 2019.
President Donald Trump announced import tariffs on Chinese goods worth US$60 billion, indirectly declaring a trade war. Most farm commodities and equity markets declined before the weekend as fears of a trade war grew with possibilities of China retaliating against US’ trade tariffs.
German ZEW sentiments that measures institutional confidence grew at 5.1 in March, the lowest in 17 months. Ifo business climate that measures manufacturers, wholesalers and retailers, was at 114.7 in March, matching consensus’ expectations.
UK consumer prices expanded 2.7 per cent in February from a year ago, the lowest in seven months. Producer prices slid 1.1 per cent on a monthly comparison, missing forecast the first time in eight months. UK average earnings rose 2.8 per cent in January, the best recorded since November 2016. Claimant counts for jobless benefit rose 9,200 in February. Unemployment rate was at 4.3 per cent in January.
The BoE retained rates at 0.5 per cent. Policymakers hinted that there might be a rate tightening in May.
Technical forecast
US dollar/Japanese yen declined after US’ credit tightening as investors flee to the yen as a safe haven. This week, we reckoned the market could fall further with resistance within 105.60 to 106. In case of breaking the 104 support, we do not foresee anymore buying interest until the trend reaches the 100 benchmark.
Euro/US dollar moved in a narrow range around 1.235 last week as the market’s attention was focused on gold and the US dollar-Japanese yen trends. This week, we predict the euro trend could begin to rise while being supported at the 1.2300 area. The first target might be at 1.2550 when the bulls start gathering a fresh momentum.
British pound/US dollar traded higher last week but the market momentum has slowed down at 1.415. This week, we forecast the range could be moving from 1.4 to 1.425 region amid mixed sentiment. No clear direction is seen until the trend breaks out of the aforementioned range.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 29 years of global trading experiences. You may reach him at dar@pwforex.com.