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Analysts at TD Securities suggest that today all eyes will be on the release of Canada’s November GDP, which is expected to fall 0.1% by TD and the market.

Key Quotes

“We expect the slowdown to be broad-based aside from the drag from energy, painting a downbeat picture for Q4 growth though this is largely expected by the BoC.”

“In addition, BoC Senior Deputy Governor Wilkins delivers a speech 12:30 ET on ways that the business cycle and longer-term factors shape wages and the overall employment picture in Canada, and how these dynamics influence monetary policy. With the BoC firmly in data monitoring mode, her comments are unlikely to sway rate expectations or our view for policy to remain on hold until the summer, when the economic picture becomes clearer.”

• The pair comes under downside pressure on dovish Fed.
• Yields of the US 10-year note drop to 2.66%, fresh lows.
• US PCE, ECI next of relevance in the docket.

The better tone in the Japanese safe haven is sustaining another daily pullback in USD/JPY, which has so far met support in the mid-108.00s.

USD/JPY comes down post-FOMC meeting

The pair is down for the second session in a row on Thursday, accelerating the decline in response to the now neutral message from the Federal Reserve at yesterday’s meeting.

The Committee now stressed that further decisions on monetary policy will look to the performance of domestic and overseas fundamentals, while gave no clues regarding the timing of end of the balance sheet run-off.

Data wise today, a plethora of releases should keep the attention on the buck: PCE figures, Personal Income/Spending, Challenger Job Cuts, Initial Claims, New Home Sales and the Employment Cost Index.

USD/JPY levels to consider

As of writing the pair is losing 0.39% at 108.60 and a breach below 107.77 (low Jan.10) would aim for 107.31 (monthly low Sep.8 2017) and then 105.55 (monthly low Feb.16 2018). On the other hand, the next up barrier aligns at 108.94 (21-day SMA) followed by 109.39 (10-day SMA) and then 109.99 (2019 high Jan.10).

Bill Diviney, senior economist at ABN AMRO, points out that the FOMC has unexpectedly removed the tightening bias from its policy statement yesterday, supporting their view that the rate hike cycle is over.

Key Quotes

“While we felt some further dovish tweaks to the statement were possible, the removal of the reference to ‘further gradual increases’ in rates was a surprise at this early stage, as was the switch to neutral language surrounding ‘future adjustments’ in rates – suggesting the next move could be up or down. This paves the way for a further fall in the FOMC dot plot interest rate projections when they are updated in late March.”

“In the press conference, Chair Powell sounded a dovish tone, contrasting a sanguine view of the broad macro picture in the US with a further reference to ‘cross-currents’ that pose risks to the outlook. These range from weakening growth in China and Europe, to the government shutdown (and the potential for further shutdowns), and uncertainty related to Brexit and the US-China trade negotiations.”

“While the Fed is signalling a somewhat quicker end to the balance sheet normalisation, it emphasised its resolve to use the fed funds rate as the primary means to provide policy accommodation in any future downturn.”

“In other words, rates would likely have to hit the zero lower bound before the Fed uses the balance sheet to ease policy, be that through the composition or through net asset purchases.”

• The index recovers some ground lost post-FOMC on Wednesday.
• Yields of the US 10-year note remain depressed below 2.68%.
• Markets perceive the Fed’s tightening cycle could be over.

The greenback is looking to extend the rebound from post-FOMC lows and has now managed to regain the 95.30 zone when tracked by the US Dollar Index (DXY).

US Dollar Index weaker on dovish Fed

The index has once again suffered the ‘Powell Put’ on Wednesday after the FOMC now shifted to a more neutral stance in its tightening cycle, particularly regarding future rate hikes (or cuts?). In fact, and as per the FOMC’s statement, the door is now open for rates to go up or down.

When considering the next steps in determining policies, the Committee will also pay attention to developments overseas, with special interest in the slowdown in China and Europe as well as the uncertain scenario surrounding Brexit and the US-China trade negotiations.

Today’s US calendar appears pretty busy and includes the publication of Challenger Job Cuts, inflation figures gauged by the Core PCE, Initial Claims, the Employment Cost Index in Q4, New Home Sales and Personal Spending/Income.

What to look for around USD

The picture around the greenback has deteriorated further following yesterday’s FOMC meeting. It is thus expected that the index will now remain under extra pressure in the months to come amidst a renewed neutral stance by the Fed, while the Committee did not give any hints on the potential timing for the end of the balance sheet run-off, although it is seen ending sooner than market are forecasting. On another front, headlines from the US-China trade talks ending today could bring in some fresh volatility to the buck’s price action.

US Dollar Index relevant levels

At the moment, the pair is losing 0.10% at 95.31 and a breakdown of 95.16 (low Jan.31) would aim for 95.03 (2019 low Jan.10) and then 94.79 (monthly low Oct.16 2018). On the other hand, immediate resistance emerges at 95.90 (21-day SMA) seconded by 96.13 (100-day SMA) and finally 96.22 (38.2% Fibo of the September-December up move).

• The greenback sold off post-FOMC on Wednesday and is now holding on to the critical 200-day SMA in the 95.30/25 band.
• This region is reinforced by the proximity of the 61.8% Fibo retracement of the September-December up move at 95.30.
• A lost of this key area should open the door for a potential retracement to YTD lows in the 95.00 neighbourhood.

DXY daily chart