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Eyes on FOMC meeting and ADP Number

Market Analysis

EURUSD, H1 and H4

Earlier today we have seen Eurozone services PMI revised down to 56.0 from 56.5 reported initially, as the Italian and French readings revised down. The German number was confirmed at 55.6 and despite the downward revision to the final March reading, it still was up from 55.5 in February, so improvement in activity continues. It is also worth keeping in mind that the later timing of Easter this year, which falls in April rather than March as in 2016, means holiday related services activities that usually pick up around then also spike later. Overall the Eurozone composite reading still improved to 56.4 in March from 56.0 in the previous month, so a confirmation of the ongoing recovery in the Eurozone.

All eyes for the rest of the day now are now focused on the March ADP employment report, which is expected to post a 187k gain for the month, below the February figure of 298k. The ADP number will be a significant key to Friday’s Employment and Payroll data. Additionally, FOMC meeting minutes are another highlight of the day, even though the report isn’t likely to provide any clearer picture on the normalization of the $4.5 tln balance sheet. The Fed began more serious discussions of its portfolio at last month’s policy meeting, and hence various issues might be discussed. The Fed has indicated it wanted to get the rate hike cycle underway before it tackled its balance sheet, so now with three tightenings and a couple of more expected this year, it’s time to deal with the balance sheet. NY Fed’s Dudley suggested last week the start of the normalization process could cause a pause in rate hikes. However mixed views on the number of rate increases this year are expected, especially given the uncertainty over fiscal policy.

Consequently, US Dollar is in focus today and is likely to rally if ADP data beat expectations. EURUSD moved south after Eurozone Service PMI missed. The pair rejected the 200 period EMA in the 4-hour chart, at 1.0690 level while it broke down through the 20-period MA. The 200-period EMA has been a short-term resistance level since last Thursday.  The negative Parabolic SAR on the 1-hour chart and RSI indicator sloping downwards suggested a possible downward momentum. Hence, in the anticipation of ADP data, and the fact that EURUSD broke the 20 and 50 period MA, in the hourly chart, prompted a SHORT position with Target 1 on the 4-hour chart at 1.0650, which is also the confluence of the 61.8 Fibonacci level. Target 2 was set at 1.0620.

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Andria Pichidi

Market Analyst

HotForex

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