David Morrison  |  04/02/2019 10:00
Last week the US Federal Reserve held its first monetary policy meeting of 2019. The FOMC statement and Chairman Jerome Powell’s subsequent press conference confirmed to many analysts that the central bank has performed a dovish pivot. The Fed removed the phrase “further gradual increases” in regards to adjustments to the fed funds rate and instead said it would be patient in future. The Fed also it would consider adjusting its balance sheet reduction programme if conditions warranted a change. All this contributed to a sell-off in the US dollar in a move which saw the Aussie Dollar and emerging market currencies as the major beneficiaries.
 
Friday brought the latest update on US Non-Farm Payrolls. There was a particularly strong headline gain of 304,000 – well above the 165,000 anticipated, even considering sharp downward revisions to previous releases. Average hourly earnings came in lower than expected, suggesting that despite good employment numbers, wage growth inflation isn’t a worry for now. Later that day, there was a blow-out ISM Manufacturing PMI which showed, in contrast to Europe and China, that the US manufacturing sector remains buoyant. Given the strength of last week’s US data, there’s a danger that the markets will misprice the likelihood that the Fed won’t tighten again this year. This chart shows rate hike probability from today through to December 2019.



This week is a little less hectic than the one just passed. China’s markets are closed for the New Year/Spring Festival. On the economic calendar on Tuesday we have the Reserve Bank of Australia’s rate decision along with US ISM Non-Manufacturing PMI. The Bank of England’s Official Bank Rate and quarterly Inflation report is out on Thursday and the fourth quarter earnings season continues with results from Alphabet after tonight’s close.

 
  From technical point of view the Euro/USD appears to be consolidating around 1.1450 after failing to hold above 1.1500 last week. Bulls will be looking for reasons to have another go this week although a retreat to intermediate support around 1.1400 can’t be ruled out. Gold is seeing some profit-taking after surging above $1,320 last week. But technically the overall picture looks constructive, particularly if it can hold and consolidate around $1,300.
 
We wish everyone a happy Chinese new year, and hope you have a profitable trading week


 

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