IS THE FED GOING TO MOVE THE MARKET?

Posted by on Mar 17, 2013

By Dino Zannoni


This post in italian

 

IS THE FED GOING TO MOVE THE MARKET?

 

ATTENTION TO THE FOMC ON MARCH 20TH

Finally the market will be able to test the bias of the Federal Reserve on interest rates and monetary policy. The meeting of March 19th – 20th will provide this information to investors and especially will show if there will be continuity in the policy of quantitative easing.

EurUsd might take a clear bullish direction in case of the second hypothesis also because, as happened last week, the oscillators are quite exhausted so that they may accommodate a bullish movement also favored by the excellent stability of the support of 1.29.

Many other macroeconomic data will come from the States and they will be concentrated in the second half of the week. Especially on March 21st , prices and home sales at the same time, the leading indicator and the Phily Fed.

 

THE GERMAN LOCOMOTIVE TREND

The market is waiting for some  clearness from Italy, but also for some signals from the ECB to cut interest rates. This week, many economic information will come from Germany. The Zew index on March 19th and the Ifo on March 23rd  represent the major market movers. To be reported also the PMI manufacturing on March 21st and services and the trade balance on March 18th.

 

THE POUND IS ADVANCING IN ITS DEVALUATION

Bears are wild against the Pound and this has led EurGbp closed to 0.88 and GbpUsd below 1.49.

We do not believe that the devaluation of the Pound is closed at this point and the graph of the parity of the purchasing power can show this theory. As we can see, the Euro has a fundamental overestimation compared to the Pound of 10%, an important number, but not enough to establish a long term primary top. As happened in 1996 and 2000, the overvaluation of the Euro against the Pound over 20% make it particularly convenient to purchase Pounds.

 overvaluation of the Euro

 

Beyond the long-term considerations, in the short term we will be able to see a rebound of the Cable  (GbpUsd). Graphically, the three lows of last month ended with a typical reversal candle called “hammer”; this could lead to a rise until at least 1.53, maybe more even thinking about a perspective weakness of the U.S. dollar that could be generated by the bias of the Fed. This would lead us to enter long on GbpUsd with stop at 1.4820.

There will be many  data coming  from the UKin the coming week, and this movement might be facilitated. Inflation on March 19th , unemployment and Boe verbal on March 20th , retail sales on March 21st .

 

 

 cable chart

 

Emerging countries

South Africa: rates announcement and inflation (March 20th )

India: rates announcement (March 19th )

 

Trade of the week: long EurCad

The graphical configuration of EurCad is quite interesting, especially for those who want to ride a trend in progress. The rally started in August 2012 has overcome the 200 days moving average first of all, then there was the confirmation  of the bullish signal with the upwards cut of the 50 days moving average against the 200 days one, and finally, at the present stage, a break of consolidation that is producing a technical figure called “flag”. EurCad has tested the 50 days moving average quickly rebounding and realizing even three decreasing bottoms. This seems to be the best moment for a long on EurCad even because a favorable month is approaching the cross: in the month of April, in the last seven years, EurCad rose six times.

 eur canada

Have a good trading week!