Wells Fargo: Scope for some disappointment if the Fed underdelivers
Price action in the FX markets can be described as consolidative, following a sizeable rally in the euro and other foreign currencies late last week, the Wells Fargo team points out. “A more cautious mood and relatively tight trading ranges are probably explained by significant event risk this week”, Wells Fargo explains. “On Wednesday, the German Constitutional Court rules on the European Stability Mechanism, while Dutch national elections are also taking place the same day. On Thursday, the Federal Reserve is due to make its policy announcement, accompanied by the latest macroeconomic projections”.
While Wells Fargo team expects a positive outcome from the European events, a negative ruling by the German court is a low probability but potentially high impact event. “Meanwhile, expectations for Fed easing this week are already elevated and there could be scope for some disappointment if the Fed underdelivers”, they say.
“On balance however, we believe last week’s upturn in risk sentiment should remain broadly intact going forward”, they say. “Although global economic data is yet to show meaningful signs of improvement, monetary authorities around the world have been stepping in more decisively to support growth and financial market sentiment, which should play out in favor of most foreign currencies in the months ahead”.
GBP/USD bounces from lows, still rangebound
The setback of the pound versus the dollar was contained by the 1.5960 area at the beginning of the New York session, from where GBP/USD bounced, trimming intraday losses. After hitting a low of 1.5958, the Cable found buyers and has managed to climb back toward the 1.6000 level where it is trading at time of writing, still down 0.1% on the day.
Having found intraday resistance in several opportunities today at 1.6015, the pound failed to approach its 4-month high of 1.6032 and retreated instead. However, momentum was lacking and GBP/USD held inside last Friday’s range. From a technical perspective, “In the 4 hours chart price is finding support in a bullish 20 SMA while developing inside and ascendant channel, suggesting bearish movements seen in smaller time frames are mostly corrective: the dominant trend remains bullish in the pair with indicators in positive territory and correcting extreme overbought readings reached past Friday”, says Valeria Bednarik, chief analyst at FXstreet.com.
