ADP Employment And FOMC Decision In Focus

News and Events:

The US dollar weakness is the main topic in the FX markets ahead of the upcoming FOMC and ECB policy verdicts. At this stage, the Fed is clearly expected to keep the USD 85bn worth asset purchases in the agenda at least until the fourth quarter. As the European markets are shut today, the ADP employment data will be closely watched this afternoon.

In UK, GBPUSD registered a decent rally as the PMI Manufacturing greatly surprised to the upside in April. The bullish trend and momentum indicators strengthened as BoE's Tucker stated that there is "reason for hope" in his speech this morning.

FOMC Policy Verdict

Today, the two-day FOMC meeting will come to its end and the Committee will give verdict at 19:00 GMT. The policy rate will probably remain unchanged at 0.25%, while the tapering of bond purchases seems very unlikely at this stage. The markets expect Fed to reduce the bond purchases from USD 85bn to USD 50bn per month, yet not before the fourth quarter. As reiterated on March 20th FOMC meeting, Fed's President Bernanke should remain determined to continue the loose policy until labor market improves "substantially". The nonfarm payrolls and unemployment data will be released this Friday and there is little chance to see any "substantial" progress. Let's first watch the ADP numbers this afternoon. The markets expect to see 150'000 new jobs added in April versus 158'000 in March.

Euro on the Topside

The weak US data gave a fresh boost to Euro ahead of the upcoming FOMC and ECB policy verdicts. EURUSD jumped to 1.3186 yesterday and consolidated gains over the 21-day MA (1.3161). The trend and momentum indicators are now solidly positive; however decent resistance is seen towards 1.3200. As the European markets are closed today, trader will be closely watching the ADP print this afternoon. Any disappointment is likely to send EURUSD to further highs ahead of the ECB meeting tomorrow. The markets broadly expect ECB to cut the policy rate by 25 basis points down to 0.50%, while some already started talking about potential 50 basis points cut. In our view, a greater cut is unlikely. As European officials stated last week, the problem is not in the high/low refinancing rates but rather in the transmission mechanism. Currency-wise, the rate cut should send the Euro-trading range a leg down once the decision gets concretized. However today, we believe that Euro should keep forcing the 1.3200/50 zone.

UK PMI Gives Hope

GBPUSD extended gains to 1.5591 after data showed that the contraction in manufacturing narrowed more than expected in April. The rally gained further pace once the 100-dayMA (1.5562) was broken to the upside. The positive trend is likely to hold throughout the day, while the downside is seen limited at 1.5475 (yesterday's support), than 1.5407/10 (April 11 & 12th resistance). On the flip side, it is important to keep an eye on the net negative futures positions at their highest level since the end-2011.

IMOH, Clement I.
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