The Feds have been successful in building up expectations of at least 3 rate hikes this year and today being another day when we expect rate decisions to be made, many investors are expecting the Feds and Yellen to do nothing and leave the interest rates unchanged. However, the expected tone should be hawkish and if this is not the case, then expect USD bears to jump in and drive the USD index to 95-97 levels. Looking at the fundamentals streaming in, the US economy with key indicators of price pressures waning. PCE, consumer spending and personal income data were repressed despite unemployment levels trending lower, there are no indications of inflation. Recent data showed inflation trending lower than the benchmark 2% with 2017 Q1 GDP at par with levels last seen in Q1 2014. In my opinion, this combination of weak economic data-which the Feds takes into consideration when deciding rates-won’t be fodder for the USD bulls and the only recommendation is to limit exposure during the announcement. Meanwhile, Kiwi is stable and recovering after upbeat data was released in the Asian session. Unemployment ticked lower 4.9% in Q1 2017 while employment gains beat expectation to print 1.2% up from 0.8% printed in Q4 2016. NZD strengthening comes at key resistance levels and we expect this to continue.
So, today, we trade the AUDCAD with a view of liquidating the Aussie on technical grounds. Price is reversing at the resistance line and therefore forming classic double tops with a sell signal printed by the stochastics. Take profit level will be at the supports with stop loss just above yesterday’s highs. This will turn out as follows:
Take Profit: 0.9965
Stop Loss: 1.0320
Watch out for the FOMC meeting and rate announcement, ADP No-Farm employment change, Crude Oil inventories-this should boost the CAD and ISM Non-Manufacturing PMI all set for the NY session.
Have a good trading day.