Cautious calm ahead of FOMC | CMC Markets Daily Commentary
US markets closed marginally lower as doubts on the US-China trade talks dampened risk appetite and the February US factory orders came lower than expected. A cautious sentiment dominated risk assets these two days, as there seemed to be lack of fresh catalyst to fuel the rally and traders are awaiting updates from the Fed’s FOMC meeting tonight. Consensus suggests the likelihood of any change in interest rate is close to zero, and what matters is a decision to end the central bank’s asset shrinking plan. Analysts also expect the Fed to lower its economic growth projections and interest rate dot plot, maintaining a widely expected dovish stance in its monetary policy.
The dollar index rebounded mildly to 95.9 area this morning, sending pressure to gold and crude oil prices. The fact that a dovish Fed is largely been priced-in ahead of tonight’s FOMC meeting rendered the US dollar facing upward pressure should traders take profit from dollar shorts and buy on the ‘fact’.
EUR/USD is hitting the upper range of a descending channel that formed since early January, suggesting the pair could face some resistance around the current 1.135 level. A dovish Fed expectation has been gradually building over the past two weeks, and EUR/USD was trending up from 1.120 to 1.135 area. Should ‘buy on expectation, sell on fact’ repeat tonight, currency market will likely see an unwinding of dollar shorts, and EUR/USD will face downward pressure as technical indicator suggests.
Asian equities mostly traded in tight range on Tuesday. Volatility and volume both shrank, suggesting perhaps investors prefer to stay on the sidelines waiting for updates from the Fed and BoE in the mid-week.
In Singapore, a broad recovery seems to be taking a pause lately and valuations no longer look cheap, but it doesn’t mean the ‘risk-on’ rally is ending soon given that regional markets – US and HK in particular – are still moving towards higher highs. Trading volume in SGX bourse remained subdued recently, as there seemed to be lack of volatility to incentivise trading this month and STI started ranging around 3,200 points.
Singapore’s NODX in February swung back to the positive territory following three months of contraction, mainly driven by non-electronic sector such as non-monetary gold and pharmaceuticals. Although electronic NODX is still contracting, but the overall positive reading brings a silver lining that overseas demand is gradually picking up from January’s level, fuelled by stronger demand from China and HK.
The cancellation of April OPEC meeting means that the current 1.2 million barrels a day production cut will remain unchanged until at least June. This removes uncertainties in terms of OPEC policy among global oil traders.
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