Market Overview

18 March 2016

WEEKLY REVIEW: the U.S. dollar is likely to remain under pressure

The Fed released its long-awaited interest rate decision this week. The Fed kept its monetary policy unchanged but lowered its interest rate hikes, economic growth and inflation forecasts. The Fed said at its March monetary policy meeting that interest rate will be 1.00% by the end of the year, down from 1.50% in December. It means that Fed officials expect the Fed to raise its interest rate twice this year. The U.S. economy is expected to expand 2.2% this year, down from the previous estimate of 2.4%, while inflation is expected to be 1.2%, down from the previous estimate of 1.6%.

The Fed Chairwoman Janet Yellen seemed to try to calm the markets saying that an interest rate hike was possible in April.

The Fed faces a dilemma. The U.S. labour market continued to strengthen and the consumer inflation excluding food and energy improved in February. Oil prices rose in recent weeks. All that supports further interest rate hikes by the Fed. But the economic growth in the global economy and in China slowed down.

It is unlikely that the global economy will improve in the coming weeks and months. That could lead to the delay in further interest rate hikes by the Fed.

Oil prices remained in focus. Oil prices rose this week on news that OPEC and non-OPEC countries planned to meet in Doha on April 17 to discuss the freeze of the oil output. It seems that Iran will not participate in this meeting. Earlier, news reported that oil producers planned to meet in Moscow on March 20.

As I mentioned last week, there is a vicious circle. If oil prices rise, the U.S. oil producers could raise its oil output, increasing the number of the active oil rigs, and oil output, which would weigh on oil prices. An agreement on the freeze of the oil production is needed.

Higher oil prices are important for the European Central Bank (ECB) as the central bank tries to boost inflation in the Eurozone, adding further stimulus measures last week. I'm sceptical that it would help. Reforms are needed. The euro should also be weak to support the economic growth. But if major central banks also ease their monetary policies, it is unlikely the euro will be weak.

It is likely that the currency pair EURUSD will rise toward the resistance level at $1.1400 or at $1.1500, if there will be negative news from the U.S. or there will be negative news from China and there are no negative economic data from the Eurozone.

If the U.S. economic data is better than expected and in case of the negative economic data from the Eurozone, the currency pair EURUSD may test the support level at $1.1200 or $1.1100.

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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