Asian Open US indices lower following soft data on FOMC eve

Asian Futures:

• Australia's ASX 200 futures are down -30 points (-0.44%), the cash market is currently estimated to open at 6,797.10
• Japan's Nikkei 225 futures are down -50 points (-0.17%), the cash market is currently estimated to open at 29,871.09
• Hong Kong's Hang Seng futures are up 97 points (0.34%), the cash market is currently estimated to open at 29,124.69

UK and Europe:

• The UK's FTSE 100 futures are up 54 points (0.8%)
• Euro STOXX 50 futures are up 22 points (0.57%)
• Germany's DAX futures are up 108 points (0.75%)

Tuesday US Close:

• The Dow Jones Industrial fell -127.51 points (-0.39%) to close at 32,485.59
• The S&P 500 index fell -6.23 points (-0.16%) to close at 3,962.71
• The Nasdaq 100 index rose 69.74 points (0.53%) to close at 13,152.28

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US data misses on FOMC-eve

The Russell 2000 was the weakest performer, falling -1.7% from record highs during its worst session in eight. The Dow gave back -0.39% whilst the S&P 500 fell a modest -0.16%. The Nasdaq bucked the trend and closed 0.53% higher, although fell short of breaking above 13,300 resistance. A break above here opens up a run to its record highs.

There has been a lot of market chatter about a booming US economy and how it could force the Fed to upgrade economic forecasts and have a more hawkish dot plot. Yet a small wrench was thrown into the works overnight with disappointing retail sales, industrial production and manufacturing output. And right on the eve of the Fed’s meeting! Sure, it’s not going to make them any more dovish than they already are. But it likely takes a little wind of a hawkish sail.

Still, in some cases where a number fell short of expectations, the previous release was upwardly revised. So mixed blessings all around.

• Industrial production fell -2.2% in February (0.3% forecast), down from 0.9% in January (upgraded 1.1%)
• Capacity utilisation fell to 73.8% in February (75.5% forecast), down from 75.6% in January (downgraded by -0.1%)
• Manufacturing output fell by -3.1% in February (-0.1% forecast), down from 1% in January (upgraded to 1.2%).

The day the ZEW flew

Germany’s ZEW report surpassed expectations again overnight, with the headline sentiment index rising to a six month high of 76.6 (up from 71.2 previously and bearing 74 forecast). Respondents said they expect a broad-based recovery for Germany, inflation to continue rising with long-term interest rates and a minimum of 70% of the population to be offered a vaccine by Autumn.

The Euro STOXX 50 index was Europe’s strongest performer, rising 0.85% to a 13-month high and sits within reach of its record high. The DAX rose 0.66% although warns of a double top with its inability to break its record high. The FTSE closed above 6800, up 0.8% on the session.

Forex: USD at the mercy at a flip of the Fed’s coin

The US dollar index (DXY) ticked it way to a 3-day high, remaining above its 10-day eMA yet finding resistance around 92.00. Closing the day with a Spinning top Doji, the ‘gains’ are a little underwhelming, and directional commitment is in line with activity ahead of high-profile central bank meetings (underwhelming).

• EUR/USD is holding onto 1.1900 after an intraday break beneath it and currently trades at a 4-day low. As it now sits approximately midway between then 1.1835 low and 1.2000 handle, its next directional move within this range could really become a flip of the Fed’s coin. (And yes, the dollar could move violently in both directions if the Fed’s message confuses or disappoints enough).
• AUD/USD has produced two bullish hammers and found support at 0.7700, suggesting it would like to retest the 0.7820/27 highs.
• AUD/NZD held above Monday’s bearish engulfing candle and the 10 and 20-day eMA. Regardless, the bias remains bearish beneath Friday’s high as the large bearish engulfing candle occurred at a historical supply zone.
• And whilst on supply zones, USD/JPY’s strong bullish run has also faltered at a supply zone (below June 2020 highs). Next major resistance is 109.85 and prices trade around 109.00, so around 86 pips of upside headroom for spikes. Next support level is around 108.16 – 108.50

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AUD/CHF: One to watch should risk-appetite turn

AUD/CHF has had a great bullish run. Perhaps too great. After finding resistance at the April 2019 high and printing a bearish hammer in February, a correction may not be overdue.

The daily chart has recently failed to break out of a symmetrical triangle and prices are now beneath their 10-day eMA. Given overhead resistance and lac of pullback we are watching this one to potentially short, should risk appetite turn sour.

• A break below 0.7127 brigs the 0.6981 to 0.7000 support zone into focus for bears
• The bias remains bearish below 0.72243 if we see prices break 0.7127 support
• Bullish positions becomes of interest if or when prices break above 0.7273

Commodities: Palladium sores on supply concerns

The world’s largest high-grade nickel producer warned its nickel, copper, platinum and palladium output could fall 15-20%, which sent palladium soaring 5% overnight to a one-year high 2,520. Given it pierced the top of its 5-month range and holds above its 200-day eMA, perhaps it is ready to finally break higher.

Oil prices tested but held above their 10-day eMA overnight. Brent traded lower and hit our initial bearish target around the 67.86 – 68.00 lows and printed a low of 67.38. Now its rebounded to 68.48 we’ll probably step aside from this one for now. (Second target was between 66.55 – 67.00). And, as WTI produced a bullish hammer above its 10-day eMA, perhaps a pop higher is on the cards.

Gold probed 1740 resistance before closing around 1731 and producing a bearish pinbar, with the 20-day eMA capping as resistance. A break above the overnight high brings 1760 into focus, but this could just as easily move lower to retest key support at 1700.

Silver remains anchored the $26 after several choppy days around this key level. There are nicer charts to be looking at.

Up Next (Times in AEDT)

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

New Zealand release their current account figures and Japan release trade balance data during the Asian session, but we doubt this will have a major impact ahead of the Fed meeting.

Canada’s CPI data warrants a look as BOC outlined their expectation for inflation to temporarily rise to the top of their 1-3% band over the next three months. So it had better get its skates on. A weak print could weigh on a strong Canadian dollar.

And for the night owls and early risers across Asia, at 05:00 Federal Reserve release their target rate, economic forecasts and policy statement. Whilst no change is expected on the rate, traders are expecting to see economic forecasts raised. But the limelight will be on their dot plot to see whether more than one voting member expects the Fed to raise rates before 2024 (as it stood at their December dot plot). If several members bring forward expectations of a hike it will likely be as good as a rate hike and send the US dollar broadly higher.