Daily Commentary
 | 22/03/2018

BoE expected to remain on hold today

• BoE will announce its interest rate decision today (12:30 GMT) and is expected to remain on hold at 0.50%. GBP OIS imply a probability to remain on hold at around 89%, while the rest is for a 25 basis points rate hike. Market focus is expected to shift to the banks accompanying statement as well as the actual votes for any discerning voices. We see the case for the statement to have a well-balanced tone however risks seem to tilt to the upside for a more hawkish tone. Arguments for such a tone could include Bank of England Governor Carney’s hawkish comments in February, yesterday’s acceleration of the average weekly earnings growth rate and a possible rate hike in May (GBP OIS imply a 71% probability for such a scenario). On the other hand the recent deceleration of the inflation rate and the ongoing uncertainty about the future trade relationship of the EU and the UK, could suggest caution and a more balanced statement. Should there be a hawkish tone ahead of a possible May rate hike, we could see the GBP strengthening.

• Cable jumped yesterday breaking the 1.4040 (S1) resistance level (now turned to support). We see the case for the pair to trade today in a sideways manner with some bullish tones as the BoE’s interest decision could support the GBP. Should the bulls take the reins we could see the pair breaking the 1.4168 (R1) and aim for the 1.4345 (R2) resistance level. Should the bears take the driver’s seat, we could see the pair breaking the 1.4040(S1) support level.

The Fed hiked yesterday however the USD weakened

• The FOMC decided a 25 basis points rate hike yesterday and the Fed’s interest rates reached 1.75%. The renewed dot plot did not show the 4 rate hike path many analysts expected. Overall, despite the well balanced tone and the positive economic projections the absence of any hawkish elements in the accompanying statement and the press conference could have disappointed the market somewhat. The USD should start stabilizing and correcting after the initial expectations gap.

• USD/JPY dropped yesterday however did not break the 105.55 (S1) support line. We see the case for the pair to continue to trade in a sideways manner today. Should the pair come under selling interest, we could see it breaking the 105.55 (S1) support line and aim for the 104.66 (S2) support zone. Should it find buying orders along its path we could see it reaching or even breaching the 106.95 (R1) resistance level.

In today’s other economic highlights:

• In the European session, we get the France’s, Germany’s and Eurozone’s preliminary Markit manufacturing PMI’s for March as well as the Ifo Business Climate and Current Conditions indicators for March. The release of these indicators could weaken the common currency as they are forecasted to drop somewhat. Later on, we get UK’s Retail Sales for February which could support the GBP somewhat. In the North American session we get the US initial jobless claims and the US preliminary Markit manufacturing PMI for March. As for speakers, ECB’s Sabine Lautenschlaeger, BoE’s Dave Ramsden and BoC’s Carolyn A. Wilkins speak.

USD/JPY

• Support: 105.55(S1), 104.66(S2), 103.65(S3)

• Resistance: 106.95(R1), 108.30(R2), 109.20(R3)

GBP/USD

• Support: 1.4040(S1), 1.3915(S2), 1.3775(S3)

• Resistance: 1.4168(R1), 1.4345(R2), 1.4575(R3)