IMF Raises Global GDP Forecast, FOMC in Focus
The IMF (International Monetary Fund) raised its global growth forecast for 2021 by one percent from its prior report, yet also warned the world economy faces ‘exceptional uncertainty’ should cases continue to rise and vaccines not quash the pandemic. For the US, IMF expect Joe Biden’s stimulus plan to boost US GDP by 5% over the next three years, which will no doubt be noted by Fed members ahead of today’s FOMC meeting.
Yet, perhaps unsurprisingly, lowered UK’s growth forecast due the recent surge in cases which resulted in tighter lockdowns late December. UK’s unemployment rate rose to its highest level in nearly five years as the second wave lockdown continues to bite into an already fragile economy. Moreover, redundancies hit a record high, meaning these are jobs that are not likely to be reopened any time soon, if at all. Yet despite the gloom, the employment situation is actually faring better than many economists expected.
Despite this, the FTSE 100 (UK100) and British pound were firmer overnight. GBP/USD is testing its 2.5 year high, GBP/JPY rose to its highest level since September, driven by the lower rise in new coronavirus cases. The US dollar was lower ahead of tomorrow mornings FOMC meeting, with the US dollar index producing a bearish engulfing candle yet continues to hold above 90 support. Commodity currencies and oil prices were also firmer against the greenback.
Today’s Calendar Events (Times are GMT+11 Sydney)
Inflation data for Australia is released at 11:30am today. Yet with trimmed mean inflation (the RBA’s preferred read) at record lows of 1.2% whilst their target band remains fixed at 2-3%, it is difficult to imagine an upside surprise worthy of making an impact. Yet if inflation moves lower, it could see expectations for further stimulus and, perhaps (counterintuitively) be an AUD bullish scenario.
The main event is the FOMC meeting at 06:00 tomorrow. With just five of seventeen FOMC members expecting a rate rise by 2023 or sooner, there is clearly no rate-change being expected today. But given the improved economic data from the US since the FOMC’s December meeting, we could hear rosier wording in Jerome Powell’s press conference (06:30 tomorrow), although we see little change coming from the Fed’s statement. However, it may be a cautiously optimistic tone at best, given the meeting is before tomorrow’s Q4 GDP print.
ASX 200 (AUS200): 6,754 is Pivotal
ASX 200 futures have remained near their multi-month highs ahead of the cash market open today. The daily chart remains in a strong uptrend and recently broke out of a sideways range to the upside. A bullish engulfing candle formed on Monday which found support at the 10-day eMA, making its 6,754 low a pivotal level for bullish or bearish positions.
- If 6,754 support holds, a break above this week’s high suggests bullish continuation.
- Whilst 7,000 is the next major resistance level, the historic swing lows around 6,890 are an interim target.
- A break beneath 6,754 invalidates the bullish bias and could be of interest to bearish counter-trend traders.
USD/CNH: Eyeing a Break of the Rising Retracement Line
USD/CNH remains within a strong downtrend on the daily chart, although prices remain within a counter-trend move. Yet prices remain below 6.4985 – a pivotal level of resistance previously highlighted. And whilst prices remain below this key level, the bias continues to be for another leg lower.
- Bears could use a break of the rising retracement line to consider short positions.
- Initial bearish target is just above the 6.4120 lows.
- A clear break above 6.4985 invalidates the near-term bearish bias and suggests a deeper retracement.
NZD/USD: Correction Over?
Bullish momentum on NZD/USD’s daily chart is regaining strength, and yesterday’s bullish outside candle suggests bulls will try to take the pair to new highs. Price action is firmly above the 10- and 20-day eMA, both of which curl upwards to show a increase I momentum. But the bullish outside low also confirms a swing low has been seen.
- A break above yesterday’s high brings the 0.7310 high into focus for bulls.
- If confident prices will break higher, bulls could consider bullish setups (limit orders within yesterday’s range) to improve potential reward to risk ratio.
- A break beneath 0.7165 invalidates the bullish bias.