Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Strong Post Fed Minutes, Yen Resumes Outperformance

Published 22/02/2018, 08:47
Updated 09/03/2019, 13:30

Market Overview

The Fed minutes initially gave equity traders what they wanted. Limited fear of inflation and an improving economic outlook. However the reaction on the bond markets eventually drove more of a fearful response. The addition of one word to the outlook, 'further' with regards to policy tightening, pulled US Treasury yields higher and the reaction subsequently spooked equity markets.

The dollar has rallied as it was a positive economic position rather than inflation driving yields higher, but equity markets are concerned that three hikes in 2018 may actually become four. Fear is helping to pull traders back into the yen once more. My feeling is that this is a bit of a heavy-handed over-reaction which will be unwound. The market has needed to continue to price in the three hikes, but there is little need for the Fed to really spook the markets with accelerating tightening. However, fear is a significant enemy in these markets now.

Wall Street closed lower again with the S&P 500 -0.5% at 2701, whilst Asian markets were broadly lower (Nikkei -1.1%) and European markets are opening strongly down. Can the bulls react to prevent renewed selling fears from taking hold?

In forex, the dollar is strong across the majority of the majors, but the yen is the main outperformer today.

In commodities, the stronger dollar is hitting gold by a couple of dollars, whilst oil is a percent lower even though the API crude stocks showed a surprise drawdown.

For economic data today, the German Ifo Business Climate is at 09:00 GMT and is expected to slip to 117.1 (from 117.6 last month). Then the market is not forecasting any revisions to the second reading of UK Q4 2017 GDP growth at 09:30 GMT which is expected to remain at+0.5%. The ECB Monetary Policy Meeting Accounts at 12:30 GMT will also be eyed and could drive some volatility through the euro.

US Weekly Jobless Claims are at 13:30 GMT and are expected to remain around 230,000 where it was last week. The EIA Oil Inventories are a day delayed this week due to Presidents Day and are at 16:00 GMT with the crude oil stocks expected to again grow by 2.0m barrels (after +1.8m barrels last week), with distillates in drawdown by -1.5m barrels (-0.5m barrels last week) and gasoline inventories in drawdown by 0.7m (+3.5m last week).

The comments from the FOMC’s Bostic who is a voting member in 2018 will also be watched.

Chart of the Day – FTSE 100

At yesterday’s close, the recovery on FTSE 100 had been on the brink of a key technical breakout. The original spike rebound failed at 7312 before retreating back to form a low at 7073. Last week’s recovery could not quite break back above 7312 however after yesterday’s strong bull candle the market looked ideally placed for another challenge. However a sharp sell-off on Wall Street in the wake of the Fed minutes has changed the emphasis of the market this morning. How the bulls respond to the initial downside this morning will be key. Holding above 7202 is the first aim in a fast moving market, but then the bulls will look to close back above the 23.6% Fib retracement at 7244. This all comes with the momentum indicators all improving, with the RSI into the low 40s, the Stochastics rising and most importantly, the MACD lines posting a bullish crossover. Ultimately, a move above 7312 would complete a base pattern, but tht is for another day hopefully. Today is about damage limitation.

FTSE 100 Daily Chart

EUR/USD

The dollar rebound continues to drag EUR/USD lower as a fourth consecutive negative candlestick formation has pulled the pair further lower and within touching distance of key near term support. With the Average True Range of exactly 100 pips today the February low of $1.2205 is in reach today. Considering the momentum indicators continue to deteriorate, the potential for a test of this key low is certainly growing. This remains a near term correction within a medium term uptrend and is still likely to be a good medium term buying opportunity, but the near term risk is to the downside for now. The hourly chart shows clear selling on any opportunity, with the spike high following the Fed minutes to $1.2360 now being a key level near term. Below $1.2205 there is further support at $1.2163 and $1.2090 but it would also complete a small top pattern.

EUR/USD Daily Chart

GBP/USD

Cable is beginning to find corrective traction as a fourth consecutive negative session formed yesterday. This comes with the momentum indicators tracking lower across the board and a retreat towards the three month uptrend and rising 55 day moving average (currently $1.3735) could be seen. At the least, the risk of a pull back to the support of the key February low at $1.3765 could play out. The hourly chart shows a consistent run of lower highs and lower lows, with the resistance left in the wake of the Fed minutes at $1.4010 now being a key barrier. The hourly RSI shows rallies failing around 50/60 and MACD lines unable to recover above neutral now. With further early downside seen today, the initial support is $1.3800 before $1.3765. This still remains a near term correction within a medium term uptrend but for now the selling pressure is the driving force on Cable.

GBP/USD Daily Chart

USD/JPY

The technical set-up on Dollar/Yen to sell into rallies is excellently configured. The big question is whether this dollar rally will flounder within the overhead supply of the resistance range 107.30/108.30. It is interesting to see the dollar strengthening across majors this morning, but on Dollar/Yen, once more it looks as though the buyers of the yen are the stronger force. This is beginning to stunt the recovery and if this continues, questions will arise as to whether this is the time to sell. For now this is merely a consolidation and there are no renewed sell signals. The hourly chart may hold some clues, with the RSI, MACD and Stochastics now tailing off. There is minor pivot support around 106.80 which is also supportive below today’s low of 107.13. A positive yen remains a strong play in these current market conditions. Initial resistance at yesterday’s high of 107.90.

USD/JPY Daily Chart

Gold

Another negative close on gold has taken the market below the pivot around $1325. With the momentum indicators configured negatively there is an increased risk now of a retreat back to the February low at $1306.80. The final real level of support of note is at $1319.40 which was the last real higher low from the previous rally. However with the hourly chart indicators negatively configured there is a consistent theme of selling into strength now. The Fed minutes have left a resistance at $1336 which now becomes a key near term barrier, but for now the pressure is to the downside. For now this remains a near term correction but if the support of the long term pivot at $1300/$1310 decisively fails then the selling could increase.

Gold Daily Chart

WTI Oil

The slip back in the oil price during the middle of this week seems to have been contained for now, with the momentum indicators maintaining a neutral configuration. Interestingly this comes as the market has bounced off support of an old pivot around $60.85. This means that trading in WTI is now within two pivots with support at $60.85 and resistance at $62.85. After a relatively benign few candles, closing outside these pivots should begin to drive direction once more. Pressure is initially to the downside today as the oil price is hampered by renewed dollar strength, but we would still be looking for a close below $60.85 to drive near term direction. It would then open a retreat back towards the key support around $59/$60.

WTI Oil Daily Chart

Dow Jones Industrial Average

The recovery is beginning to become pressured, as the market reacted negatively to the Fed meeting minutes yesterday. The hourly chart showed an initial positive response but very late in the session this was replaced with sharp selling pressure into the close. This left a strong bearish engulfing candle and really begins to increase the pressure to the downside. Losing the supports at 24,884 and then 24,809 suggest the outlook moving into reverse. Reactio today will be key as a breach of the support of the higher low at 24,421 would re-pen a test of the lows again. Momentum indicators remain positively configured on the hourly chart but if the hourly RSI begins to fail below 30 this would be of increased concern. The bulls do though need to push back above 25,179 to re-establish more positive traction once more.

Dow Jones Industrial Average

DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.

All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.