The U.S. Federal Reserve is fully expected to start hiking interest rates this Wednesday, with further incite as to how many that will take place in 2018. Wall Street economists are telling investors to brace for the biggest tightening of monetary policy and interest hikes across all developed economies in more than a decade. With the world economy heading into its strongest period since 2011, Citigroup Inc. and JPMorgan Chase & Co. predict average interest rates across advanced economies will climb to at least 1 percent next year in what would be the largest increase since 2006.
The Canadian dollar has remained unchanged and will likely stay that way till Wednesday, oil has moved higher, however, at this moment, the Fed’s decision has a bigger impact on the currency.
USDCAD 1.2845, 1.2828, 1.2815 1.2858, 1.2878, 12896
XE Asian Market Analysis:
FX trade was relatively light in N.Y. to start the week, with little in the way of data to drive prices, and as traders remained largely sidelined into Wednesday’s FOMC announcement. The dollar dipped in early trade, before managing a modest comeback after the London close. EUR-USD topped at 1.1811, later basing at 1.1784. USD-JPY touched 113.28 lows early, before peaking at 113.49, while USD-CAD idled on either side of 1.2850. Cable fell to 1.3330 lows.
EUR-USD rallied to two-session highs of 1.1811, after basing in Asia at 1.1766. The pairing is now stuck between its 20-day moving average at 1.1821, and its 50-day moving average at 1.1760. We see near-term scope for further gains, though limited ahead of some key data and central bank policy decisions this week, which include the Fed, ECB, BoE and SNB.
USD-JPY was steady through the session, basing at 113.28 at mid-morning, before topping at 113.49 after the London close. A modest risk-on backdrop has provided support, though traders will not push either direction too hard ahead of Wednesday’s FOMC announcement.
Cable logged a two-session low at 1.3330, extending losses from Friday’s peak at 1.3521. Last week’s divorce agreement didn’t actually resolve the Irish border issue in the scenario of a hard Brexit — that the UK makes a clean break from the EU, and its single market and customs union — as a customs-free border between Northern Ireland and the Republic would be surely unworkable in this context. The agreed “regularity alignment” was not so much a solution but a mutually convenient political device to move talks to the next phase, on trading terms. We anticipate Cable’s near-term bias will remain to the downside. Resistance is at 1.3409-10, support at 1.3320.
EUR-CHF has seen volatile price action over the last week, with multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We remain bullish over the medium term, however. Assuming the Eurozone has conquered, or can conquer, existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable, we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.
USD-CAD ranged between 1.2868 and 1.2841 since the north American open, consistent with the lack of volatility seen in other currency pairings. USD-CAD remains near its highest levels since last week’s BoC announcement, underpinned by the BoC’s cautious stance heading into 2018. Oil prices remain under recent highs, adding another pillar of support. Resistance now comes at 1.2880, Friday’s one-week top.