Action Insight Mid-Day Report 3-16-23

Euro Mildly Lower after Dovish ECB Hike, Yen Resuming Rally

Euro weakens mildly following the ECB's decision to increase interest rates by 50bps, in line with their previously stated intentions. However, the absence of any reference to future rate hikes in the accompanying statement hints at the possibility of a pause in upcoming monetary policy meetings. Concurrently, Yen is resuming its recent rally in early US trading as the US 10-year yield drops back to 3.4% level. Despite positive job data, Dollar remains mixed and continues to trade within a familiar range against commodity currencies.

Meanwhile, it is worth noting that due to the ongoing banking crisis, market expectations now point towards a final 25 basis point rate hike from the Federal Reserve next week. In fact, Fed fund futures currently suggest a greater than 70% probability of a rate cut in June, returning to a range of 4.50-4.75%. By year-end, there is a 70% chance that the federal funds rate will revert to a range of 3.75-4.00%.

Technically, USD/JPY's fall from 137.90 resumes by breaking through 132.27 support today. Immediate focus is now on 61.8% retracement of 127.20 to 137.90 at 131.28. Sustained break there will pave the way to retest 127.20 low. For now, risk will stay on the downside as long as 135.10 resistance holds, in case of recovery.

In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.33%. CAC is up 0.60%. Germany 10-year yield is up 0.055 at 2.180. Earlier in Asia, Nikkei dropped -0.80%. Hong Kong HSI dropped -1.72%. China Shanghai SSE dropped -1.12%. Singapore Strait times dropped -0.55%. Japan 10-year JGB yield dropped -0.0193 to 0.297.

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EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0475; (P) 1.0618; (R1) 1.0718; More...

EUR/USD dips mildly after failing to break through 4 hour 55 EMA and intraday bias stays neutral first. Focus remains on support zone between 38.2% retracement of 0.9534 to 1.1032 at 1.0258 and 1.0482. Strong support from there, followed by rebound through 1.0759 resistance, will retain near term bullishness. However, sustained break of 1.0258 will complete a head and shoulder top (ls: 1.0733, h: 1.1032, rs: 1.0759). Outlook will be turned bearish fro 61.8% retracement at 1.0106.

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EURJPY | EURGBP | EURCHF | EURAUD | GBPJPY

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