All eyes on the Fed

On Wednesday traders will be turning their attention to the much-anticipated FOMC meeting coming up at 21:00 GMT+2. The FOMC meeting will consist of three major parts starting with the release of the FOMC statement and the Interest rate decision while the accompanying press conference with Jerome Powell’s speech will commence 30 minutes later. We expect volatility to increase for the full duration of the meeting possibly moving USD FX pairs, Gold’s price and many other instruments across the board. Inflation is among the top subjects currently in the spotlight for the US economy, as the rates continue to be on the rise keeping analysts and economists in a somewhat critical state over the handling of the economy.

Moreover, contradicting subjects like the supply chain bottleneck challenges and the unemployment rate that has fallen to almost pre pandemic levels will be discussed. In regards to the interest rate, the bank is expected to remain on hold keeping its rate at the current 0.125%. Most importantly the market will want to see confirmation of the interest rate hike forecasted to be in March. Caution is advised as the market could undertake abrupt price swings that could open up opportunities but also considerable risks. Taking a look at the price action on Tuesday we observe first the Dollar Index, as the USD moved upwards and surpassed the previous day’s high. Yet the greenback corrected in the late US session finishing the day marginally higher. Currently, the strongest among the major forex pairs on a weekly and a daily basis is USD/CHF which advanced very notably on Tuesday.

USD/CHF advanced to test the (R1) 0.9200 level but did not manage to breach it and then proceeded to correct lower testing the (S1) 0.9160 support. These levels have both been tested in recent sessions thus in our opinion are accurate and could be used as barometers for further price direction. Higher above the (R1) we may get the (R2) 0.9235 line that’s was tested on the 12^th of January while even higher the (R3) 0.9270 is the highest level seen so far by the pair in January. If the price action is undertaken by selling interest then a possible breach below (S1) could signal a move to the (S2) 0.9130 level that was used in the previous days. Even lower the (S3) 0.9100 support level is the lowest level tested so far in January.

Is the BOC about to surprise us?

Prior to the FED meeting on Wednesday, we get the BOC interest rate decision to be released at 17:00 GMT+2. In our week ahead report we had noted that CAD OIS imply a probability of 87.33% for a 25 basis points rate hike to be performed by BoC, thus raising its interest rate from 0.25% to 0.50%. However, things are different currently and the expectation is for the bank to keep rates unchanged at 0.25%. We would like to emphasize the market’s uncertainty upon the upcoming BOC interest rate meeting.

The forecast for a rate hike and the subsequent turn towards remaining on hold seems to change almost on a daily basis, creating some ambiguity over the actual result. This can be useful for CAD traders as unexpected developments seem to create stronger market reactions. On Tuesday, the CAD was included in the few currencies among the majors to gain ground against the USD as the pair finished in red territory. Oil (WTI) which is Canada’s main exported commodity, stabilized at higher grounds in the past days. 

USD/CAD has seemingly moved into a short-term selling trend since the 24^th of January when it tested the (R1) 1.2670 line but was unable to breach it and corrected lower since. If the momentum downwards continues then the (S1) 1.2565 level can be tested first. Lower the (S2) 1.2515 support is also imminent and even lower the (S3) 1.2455 represents the final support of our chart being the lowest level tested in January.

The highest level tested for the pair is the (R3) 1.2790 line which was last seen in the beginning of January. We also note the (R2) 1.2730 that was also tested in the first week of January. The RSI indicator below our chart stands nearby the 53 level but remains in a downward trend line implying the selling in the last sessions had dominated.

New Zealand’s Inflation data in focus

Inflation data from New Zealand is expected during the late US session and can be a reason to keep an eye on the NZD. NZD/USD has been in a continuous selling trend since the previous week and the CPI rates can help intensify or correct its course. At the moment the Quarterly rate is expected to drop from previous 2.2% to 1.3% while the yearly rate is expected to rise from previous 4.9% to 5.7%. The two forecasted rates tend to contradict each other, yet, in our view the quarterly rate may be more apt to use at this stage. In this scenario we might see the NZD receiving some support.

Other highlights for today

We get the BOC interest rate decision in the US session while the EIA weekly Crude Oil stockpiles figure will be released shortly after. Moreover the star event of the day is the FOMC meeting which starts later in the US session. Later on, the New Zealand Inflation data is expected.

USD/CHF H4 Chart

Support: 0.9160 (S1), 0.9130 (S2), 0.9100 (S3)

Resistance: 0.9200 (R1), 0.9235 (R2), 0.9270 (R3)

USD/CAD H4 Chart

Support: 1.2565 (S1), 1.2515 (S2), 1.2455 (S3)

Resistance: 1.2670 (R1), 1.2730 (R2), 1.2790 (R3)

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This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.