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Fed meeting in play, Europe set for quiet start

Growing concerns that the AstraZeneca-Oxford vaccine is linked to blood clots has led to several European countries halting distribution of the vaccination. 

Several governments have taken the decision to suspend rolling out the vaccine, but at the same time, the World Health Organisation and European Medicines Agency support the vaccine. European stock markets posted gains yesterday despite the safety concerns.

Sentiment in the US cooled a little as the S&P 500 finished slightly in the red, retreating from an intraday record high. The NASDAQ 100 posted a modest gain as the tech-heavy index was coming from a lower starting point.

Volatility was low across the markets yesterday as traders looked ahead to today's Federal Reserve’s interest rate decision. The US dollar moved traded in a small range and so did gold. Commodities connected to growth, like oil and copper, fell as a mixture of profit-taking and worries about Europe’s partially stalled vaccination scheme weighed on the markets. 

Equity markets in Asia lost a little ground ahead of the Fed’s rate decision, while European indices are set for a slightly negative start.         

The Fed meeting is likely to be the main focus of today’s session. Interest rates are predicted to remain unchanged and the announcement will be made at 6pm (UK time), while 30 minutes later the press conference will commence. The US central bank is operating an extremely loose monetary policy as a way of providing support to the economy. In recent weeks, we have seen evidence the country is rebounding, unemployment is falling, while services and manufacturing levels are robust. It is encouraging that the economy is turning around but the prospect of higher growth also comes with the prospect of higher inflation.

Recently we saw the yield on the US 10-year government bond move above 1.63%, its highest level in 13 months. An increase in yields tends to forewarn an increase in interest rates, something the Fed are not planning until 2024. Last month, Jerome Powell, the Fed’s boss, cautioned that inflationary pressure is on the horizon but it shouldn’t be big enough or last long enough to justify tightening policy. Mr Powell will have to strike a balance between not being too concerned about higher yields but at the same time, he can’t be exceptionally dovish as that would most likely inflate stock prices even more. Equities have enjoyed a bullish run lately so a nudge higher in yields will probably encourage profit-taking.                  

The final reading of eurozone CPI for February at 10am (UK time) is predicted to be 0.9%, unchanged from the flash reading and from the January update. The core report strips out volatile elements like commodity prices and it is tipped to be 1.2%, down from the 1.4% posted in the last update.

Economists are expecting that US building permits will dip from 1.88 million in January to 1.75 million in February, while housing starts are tipped to be 1.56 million, down fractionally from the 1.58 million registered in the previous month. The details will be posted at 12.30pm (UK time). 

Canadian CPI at 12.30pm (UK time) is anticipated to jump from 1% in January to 1.3% in February. A jump in inflation would tie in with the broader rise in the cost of living seen in other countries.

Energy stockpiles in the US were impacted by the big freeze in Texas last month. The consensus estimate for the EIA report is that oil inventories will be 2.96 million barrels, while gasoline stockpiles will drop by 2.99 million barrels. The details will be posted at 2.30pm (UK time).

EUR/USD – while it holds below the 50-day moving average at 1.2086, the recent bearish move should continue, support might be found at 1.1800. A break above 1.2242 should bring 1.2349 into play.

GBP/USD – since late September it has been in an uptrend, it hit a 34-month high last month. If the positive move continues, it should retest 1.4241. A pullback might find support at 1.3798, the 50-day moving average.   

EUR/GBP – has been in a downtrend since mid-December, last month it dropped to an 11-month low, and further losses might target 0.8400. A rally above 0 8730 should put the 0.8800 area on the radar. 

USD/JPY – has been in an uptrend since early January, this week it hit a nine-month high. If the positive move continues it could target 109.85. A pullback from here could find support at the 108.00 area or 105.49, the 200-day moving average.

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