Forex Monthly Outlook – March 2018

The pound finally had some dose of reality during the month of February after having risen over the previous couple of months on the back of some dollar weakness and also due to the inherent strength in the pound which had been brought about by a hawkish BOE. Even during the month of February, the BOE continued to be hawkish but this did not seem to have much of an impact on the pound as doubts were beginning to be raised over the effectiveness of the rate hikes and whether the BOE would indeed be able to deliver.

GBPUSD Under Pressure

The pound weakened during the course of the month and after having risen as high as the 1.44 region during the previous month, it corrected lower back below the 1.40 region during the last month as the dollar strength dominated for much of the month. Even when the dollar strength waned, the pound bulls could not do much to push the pair higher and this has led to a weak close for the month for the pound and this is likely to continue in the coming month of March.

In March, we have a slew of data from the US in the first couple of weeks and it is also expected that the Fed would raise the rates for the first time this year in March. The market is already pricing in 3 rate hikes from the Fed this year and it is possible that the hawkish incoming data from the US could encourage the Fed to go for even 4 rate hikes and if that happens, then the pound is likely to come under some serious pressure, especially if the BOE is unable to react with its own rate hikes in the coming months. This could see the GBPUSD pair move towards the 1.35 region in the coming month.

USDJPY Searching for Support

The USDJPY pair continued to move lower during the month of February as the weakening dollar, towards the end of the month, and the strengthening yen contributed to the move lower. But it seems to have found some support in the 105 region which we believe, should support the pair in the short term as the bulls and the bears fight it out for control. We believe that there is a stronger support in the 102 region which is likely to be the target of the bears in the coming weeks.

The strength of the dollar has been waxing and waning over the last month or so and this is likely to continue in the coming month. As mentioned above, the Fed is expected to raise rates in March and this is likely to lend some support to the dollar which could in turn lead to a rebound in the pair in the coming month from the 105 region. But if the Fed disappoints in its minutes and press conference or does not hike at all, then we could see some dollar selling which could then lead to the pair towards the 102 region from where, we can safely expect a strong bounce.

AUDUSD Breaks Through Support

The AUDUSD pair weakened during the course of February as the strength of the dollar was something that was too much for the Aussie bulls to handle and this caused the pair to break through the important support region around 0.8000 and once this support region was broken, we have found the pair slipping steadily lower. The fact that the gold prices have also been weak overall has lent little support to the Aussie and that is also one of the reasons why the prices have been moving lower despite some weakness in the dollar towards the end of the month.

In the coming month of March, the broken support around the 0.8000 region is likely to act as the resistance and should hold any kind of bounce that may happen. The tariff on the import of metals in the US is likely to affect the Aussie in the medium term and this, along with the strength of the dollar, which is expected to pick up in the coming month due to the impending rate hike, is likely to keep the AUDUSD pair under pressure over the coming month. We might see some strength in the pair in the first half of the month but this should be sold into and lead to a weakening in the second half of the month.