30/07/2015: Few clues offered in FOMC statement but dollar bulls edging control

Market Overview

So, nothing really to go on from the FOMC then. No rate hike (as expected) but also little in the way of hints over a potential rate hike. Perhaps we could focus on the tweak “some” further improvement in the labor market, however the Fed has been going on for some time about the labor market, so we know that it is largely a ticked box when it comes to the dual mandate. So it will now be focus on the progress of inflation (i.e. the other part of the dual mandate) which will be important in the coming weeks. The first indication will be the core Personal Consumption Expenditure on Monday. The fact that the Fed sees the commodity prices movements as “transitory” could also be taken as marginally hawkish. The markets gave the FOMC a cursory glance, with a slight impact of dollar strength, but nothing to get too worked up about. Interestingly, commodities hardly reacted at all in US trading hours, but as the Europeans have taken over the gold price is coming under fire once more.

Wall Street closed higher with the S&P 500 up 0.7%, and although Chinese equities continue their volatility, Asian markets were also slightly higher (Nikkei +1.0%). European markets have opened marginally higher. In forex trading, there is a slightly positive outlook for the dollar as the European trading takes over.

Traders will look to digest the FOMC quickly as attention will soon turn to the first look at Q2 US growth as the Advance GDP reading comes out at 1330BST. The expectation is for an annualised +2.6% to have been achieved which would be a significant recovery from the -0.2% final reading of Q1. In other data today, the flash reading of German CPI inflation is released at 1300BST (although the regions are released throughout the morning). The expectation is for another month of +0.3%. Weekly Jobless Claims at 1330BST take on extra interest at last week’s record low of 255,000. Expectation is for a slight increase to 268,000.

Chart of the Day – EUR/JPY

The euro is still trying to regain its poise following the selling pressure that came with the Greek crisis about a month ago. However, now the bulls are looking to test the resistance around 137 once more. This was an old resistance that had previously been broken to herald what appeared to be an upside break on the euro. This level has been seriously tested over the past month and remains under pressure. A slight backing away of the euro yesterday has come with the resistance tested consistently over the past three days. The momentum indicators are on an improving track (although the Stochastics have just dipped back lower again). This would mean that I now see EUR/JPY as a buy into weakness. There has been a higher low at 134.28 above the 133.26 key reaction low, which reflects the improvement in the past couple of weeks, whilst the intraday chart shows the near term dip is back into the support band 135.50/136.00 around which I expect to see the bulls return for further pressure on the 137 resistance.

EURJPY   07072015


Despite there being no explicit changes to the Fed statement, the very slightly hawkish lean has resulted in the switching once more of direction on EUR/USD. I have been talking of the recent rebound being counter trend and approaching some key medium term technical reasons why the sellers would be ready to return and so it appears to have been the case. The importance of the barrier that has become the falling 144 day moving average (currently $1.1105) is growing ever stronger. Back below the $1.1050 now means once more that the outlook is on the bearish side, and with the momentum indicators rolling over (specifically the Stochastics and the RSI), the rebound has certainly lost its way. Looking at the intraday hourly chart also backs this assertion with the broken uptrend, while the hourly moving averages and hourly momentum indicators taking on a corrective configuration. It would appear that once more rallies will be seen as a chance to sell. The near term resistance comes in at $1.1020 which had been acting as a floor and should help to contain any near term bounces today. I would expect further pressure on the initial support at $1.0965 before further downside to retest the low at $1.0870.

EURUSD   30072015


Cable is a lesson in waiting for confirmation of a breakout. The initial move above $$1.5670 came yesterday afternoon on little fundamental reason in front of the key FOMC decision. For me it did not feel right and within minutes a turnaround from a peak of $1.5690 before further correction induces by the FOMC statement. This has left an almost shooting star candlestick (which is corrective) and in effect the range play continues. The daily chart shows little real change with the momentum indicators showing a slightly positive skew but lacking the conviction. The hourly chart shows an attempted breakout which has been dragged lower again. That is not to say that the bulls have been completely banished. There has been no really corrective signal yet, with the retreat into the initial support $1.5570/$1.5585 holding. It is in effect, as you were really, with the FOMC not really adding a great deal, the range play continues. The mixed signals on the daily chart suggest still a lack of any conviction either way. Initial support comes in further lower at $1.5525.

GBPUSD   30072015


The dollar has been boosted in the past couple of days and once more the 30 pip resistance band of the 23.6% Fibonacci retracement of 118.86/125.85 is back in play at 124.20 and the recent rally high at 124.48. The momentum has ticked higher again, with the rebound yesterday dragged the Stochastics higher. The intraday chart shows the broken near term downtrend and the move above initial resistance at 123.70/80 (which now becomes supportive). However, I am not going to get excited until there is a decisive breach of the resistance at 124.48, as this position has been seen several times before. Also, the hourly RSI is once more up around 70 and beginning to roll over just at a time where the resistance is being tested, which does not bode well for an imminent breakout. Key near term support is now at 123.30.

USDJPY   30072015


The gold bulls have still got nothing to go on as the hawkish hints in the FOMC statement keep them at bay. In fact as the European traders have taken control today, the price is once more coming under pressure. After two completed trading days of gold barely budging (trading in a tight $12 range) the price is breaking lower once more. A downside move below the initial support at $1088.80 now brings the $1077.00 support back into range. The key near term resistance remains at $1105.60, but I am now ruling out a possible recovery base pattern as the bulls just do not have the backing for it. I expect that rallies will be sold into now. The overhead resistance remains $1105.60, $1109.50 and $1118.70.

Gold   30072015


The positive candlestick and first potential signal of a reversal has been backed up by an even more positive candle yesterday. This gives us consecutive candles that will give the bulls a lot of confidence. There is still not a great deal that has been accomplished yet, however the Stochastics have turned higher and the RSI has crossed back above 30. I would not yet take this as a buy signal from the RSI, as I would prefer to wait until the RSI moved at least above the 36 level it hit following the attempted recovery move in mid-July, to give some confirmation of the improvement. The intraday hourly chart shows some resistance has been breached with a move above $49 an important near term move. I would now like to see the support being formed between the support band $48/$48.50. If this is seen then I will begin to get interested in a near term rebound being sustainable. There is a higher low in place also now at $47.40.

WTI   30072015

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