The FOMC announced decision to keep the policy rate unchanged at 2.25%-2.50% and end its balance sheet shrinking program in September this year.

The central bank also signalled no rate hikes for the entire year amidst weaker economic outlook, slashing 2019 growth forecast to 2.1%, one percentage lower than last year. Dovish stance led dollar to plunge against its major peers, and EUR/USD broke out above its descending channel and surged to six-week high of 1.143.

Market is expecting rate cut, rather than rate hike this year. According to CME FedWatch, the future market implied probability of one rate cut by December 2019 has risen to 28.7%, from 13.8% a month ago. The likelihood of no change in interest rate by December has fallen to only 65.9%. There is no expectation for any rate hikes this year from futures market.

Weaker dollar gave commodity market a boost overnight, from gold to copper and crude oil. Stock markets closed mostly lower by a softer growth outlook and resurging US-China trade uncertainties after President Trump re-emphasized trade tariffs imposed on China will remain until his counterpart is obligated to a trade deal. This scraped earlier expectation of tariff cut in view of trade talk progress, suggesting the two countries are perhaps facing difficulties to reach a concrete deal.

Gold price has resumed its ascending trend, with its 10-Day SMA and SuperTrend (10,2) both sloping upwards. Rising US-China trade uncertainties and sinking dollar are the two main factors behind gold’s strength.

Brent crude oil prices climbed to five-month high of US$68.3 area, as US crude stockpile fell by 9.58 million barrels, comparing to forecast of 74,000 rise. Technically, Brent is challenging a 50% Fibonacci Retracement level at around 68.2 area, breaking out above this level will lead to further upside towards the next 61.8% level at US$72.5 area.

Australian February job report came below market expectation, with 4,600 new jobs added missing consensus of 14,000. Unemployment rate has fallen to 4.9%, beating forecast of 5.0% and backing the strength of AUD this morning. AUD/USD has broken out above key resistance of 0.710 and extended gain towards 0.716 area. Its immediate resistance can be found at 0.718 area.

Thursday’s calendar is full of macro data – with Australia’s jobs report, UK retail sales and BoE’s interest rate decision, US weekly unemployment claims and EU consumer confidence index, dominating global market movements.

Latest Brexit development is also hanging over investors’ minds, as Theresa May sought a ‘short delay’ in Brexit but her EU counterpart Michel Barnier said they will not grant a delay without a ‘concrete plan’. Would a delay cause cabinet split or could the UK leave the EU without a plan on 29 Mar? Tail risk is still threatening.

Target Rate Probabilities for December 2019 Fed Meeting

Source: CME Group

 

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