The US dollar took a defensive stance on Tuesday, pressed by rising expectations that the US Federal Reserve will adopt a more favorable outlook for its monetary policy this week, worried about slower US economic growth.
The US dollar index, which measures the value of the greenback against a basket of six major currencies, declined by 0.1% to 96.43 points, moving close to the two-week bottom touched overnight. The index lost 1.3% after reaching a three-month high of 97.710 points on March 7, before the Fed’s meeting, which will begin later on Tuesday.
Many investors expect the Fed to keep its variable interest rate and stick to its promise of a “patient” approach to monetary policy.
About 30% of market participants expect a reduction of interest rates this year. The focus is on the extent that the Fed will be able to take this into account, without shocking the market.
While the market expects more favorable moods from the Fed meeting, it is unlikely that stock markets will react positively to such a development. If the Federal Reserve really shows bleak prospects for growth, it will be negative for US stocks, but also for the US dollar
There is a high risk, no matter what the outcome, the negative effect will be on the USD/JPY exchange rate, according to the analysts.
As the US dollar retreated, the other major currencies grew. The Euro was slightly higher, to 1.1356 USD.
Investors’ focus on Tuesday also targets the ZEW economic index for March. The Economic Sentiment remained in negative territory but improved to -3.6 points. This easily beat the estimate of -11.0 points. The Eurozone event showed a similar trend, improving to -2.5 points. This beat the forecast and was the highest reading since May. For a second straight day, there are no major US events. On Tuesday, Germany releases PPI and the Federal Reserve issues its monthly rate statement.
The EUR/USD is steady in Tuesday trade. Currently, the pair is trading at 1.1356, up 0.15% on the day. On Monday, the pair climbed to a 2-week high, as the positive momentum continues.
Fresh bulls pressure initial barrier at 1.1364 (converged 20/30 SMA) and eye other pivotal barrier at 1.1373 (50% Fibo retracement of 1.1569/1.1176), close above which would open way for probe through thickening daily cloud (currently spanned between 1.1400 and 1.1413) and possible test of key Fibo resistance at 1.1419 (61.8% Fibo retracement of 1.1569/1.1176).
Overbought daily slow stochastic requires caution, with solid supports at 1.1330-1.1326 (rising 5SMA/broken Fibo 38.2%) required to hold and keep bulls in play and guard pivotal support at 1.1317 (converged 20/30SMA’s).
The British pound also gained, rising by almost a fifth of the percentage, to 1.3274 USD. It received support overnight after the British Parliament Spokesperson said the deal with Prime Minister Theresa May could not be re-voted unless another proposal was tabled.
The Bank of England (BoA) is expected to leave its interest rate forecast unchanged at its meeting on Thursday due to growing uncertainty over Britain’s decision to leave the European Union.
The GBP/USD pair remained well bid through the mid-European session and spiked beyond the 1.3300 handle in the last hour, albeit quickly retreated few pips thereafter. The pair regained positive traction on Tuesday and built on the overnight bounce from sub-1.3200 level, touched in reaction to the House of Commons John Bercow’s ruling to block the government’s motion for yet another vote on the UK PM Theresa May’s Brexit deal.
Overall bullish daily techs (MA’s in full bullish setup and momentum attempts to turn higher from the midline) could help fresh advance.
Break and close above 1.33 handle is needed for a bullish signal for extension towards key barriers at 1.3381-1.3386 (new 2019 high, posted on 13 Mar/50% retracement of 1.4376-1.2397 fall). The bullish bias is expected to dominate while the price holds above rising 10SMA (currently at 1.3192).