09/10/2014: Dovish Fed minutes gives sentiment a boost

Market Overview

The expectation of the minutes from the latest FOMC meeting has been one of the factors this week that has been driving the concern of investors. A fear of a hawkish leaning has helped to pull sentiment down. However this all proved unfounded last night as the FOMC remained distinctly dovish in its outlook which should help to push back expectations of a rate hike sooner than the market had been anticipating. The minutes showed a strong debate over the phrase “considerable time” and whether the committee should change to a more data dependent view on hiking expectations was had but there was a 10-2 vote on the language in the statement. There was also concern over the strength of the dollar and the impact on economic growth, whilst a number of members also expressed concern over the global economic weakness.

This sent the dollar sharply lower which had a knock on impact on forex pairs and the price of precious metals such as gold and silver. Equities also engaged in a sharp relief rally with Wall Street posting its biggest gains of the year, as the S&P 500 closed 1.8% higher. Asian markets were surprisingly mixed overnight with the Nikkei 225 around half a percent lower, held back by a stronger yen. However, European markets are following the lead from Wall Street this morning and are trading strongly higher in early exchanges.

The major forex currencies are faring much better against the dollar in the past 12 hours although the relief rally has lost a little bit of impetus during the Asian session. Despite this though the commodity currencies are reacting positively, with the Aussie dollar stronger despite the weaker than expected employment data overnight.

Traders will be looking out for The Bank of England announcing monetary policy today at 12:00BST with little expectation of any move. There is also the US Weekly Jobless Claims which are forecast to rise slightly to 294,000 from last week’s 287,000 but still coming in below 300,000 would be considered to be a positive. There will also be half an eye on Mario Draghi who is speaking at 16:00BST in the US.

Chart of the Day – Silver

The silver price looks to be in a near term recovery phase. Having achieved a long term target (from a multiple month descending tringle breakdown) of $16.70, the silver price formed a bullish key one day reversal at a low of $16.66. The momentum indicators are all now beginning to improve, with the RSI and Stochastics advancing whilst the MACD lines are also today giving a positive crossover. With the sharp selling pressure of recent months there is certainly room for a near term rebound. The initial resistance comes in at $17.98 with the key resistance not until $18.60. However this is still just a rally within the bear market, with the overhead barrier of the 13 week downtrend currently not until $18.20. The intraday hourly chart shows a move above Tuesday’s reaction high at $17.61 would continue the bounce. The support comes in at $17.01.

Silver   09102014

EUR/USD

Finally we seemingly have a change of outlook, at least for the near term. Through yesterday’s session the euro was holding its own but was just unable to make the necessary break above $1.2700. However taking inspiration from the dovish meeting minutes of the Federal Reserve, the resistance was broken. This has also now broken a downtrend dating back to mid August and could induce a relief rally. Certainly that is the take from the intraday hourly chart which is showing a base pattern (arguably a head and shoulders bottom) which gives an implied target of $1.2900. The daily momentum indicators are picking up as the euro completes three straight positive days for the first time since early July. The $1.2700 resistance becomes the new support near term. The euro is testing the immediate resistance at $1.2764, with $1.2814 and then $1.2900 above it. One word of caution though as bear market rallies will often not quite reach their targets before the sellers regain control, however it is certainly a more positive outlook for the euro for the first time in months.

EURUSD   09102014

GBP/USD

Cable is also higher, but unlike the euro is yet to breach the downtrend that has been dragging the rate lower for the past 12 weeks. The rebound has taken sterling above the initial resistance at $1.6260 but the key overhead supply levels are still to be tested at $1.6250 and more importantly at $1.6280. In isolation you would still say that this move still has the look of a bear market rally in it and that the medium term outlook remains negative. However it would be best to see how this rebound plays out before looking for selling opportunities quite yet. There is room for further near term bounce with the downtrend coming in around $1.6230 currently. The intraday hourly chart clearly shows the positive response to the FOMC meeting minutes and there is an improving near term outlook. The interesting move will come if the rally can challenge the overhead resistance. It is then at which we will know if there is any longevity to the rebound.

GBPUSD   09102014

USD/JPY

Considering the strength seen in other major currencies since the FOMC minutes it is somewhat surprising perhaps that the yen has not managed to pull lower to complete the breakdown of the consolidation range. However we are still looking for that close below 108.00. The dollar bulls are hanging on despite the deteriorating momentum (especially MACD and Stochastics) showing the likelihood of the breakdown. Most signals are pointing to a lower Dollar/Yen, but the overnight reaction suggests the downside would not be too significant. I retain my view that a move back towards 107.00/17.50 would be around where I would be looking for the next medium term buy signal, however the move is yet to play out. Trading still within the range there is a basis of resistance within the band now at 108.73.

USDJPY   09102014

Gold

As with many dollar related plays the price has been given a boost by the dovish outlook from the FOMC minutes. Yesterday was a volatile day for gold where the initial technical resistance at $1221.64 had initially held strong before the $18 rally on the announcement of the FOMC minutes which burst through the resistance levels. The outlook for gold is therefore improving near term. The rebound is into its fourth day now and the overhead barrier of the old downtrend channel (around $1225) is being currently tested. The outlook is improving (near term) on the daily momentum indicators with the Stochastics and RSI especially showing signs of improvement. The next resistance comes in at $1230 and then $1234.80, but the key test will come at $1240.60. For now, the near term technicals suggest to go with the rally, but there is significant overhead supply up towards $1240.60 and until otherwise, this still looks to be a bear market rally. The rebound has left support at $1204.60.

Gold   091092014

WTI Oil

Selling the intraday rallies continues to be the best way to play WTI. The price remains on its bearish slide and looks destined to retest the March 2013 low at $85.61, but the November 2012 low at $84.04 is also well within range. The big concern is that the daily momentum indicators have just rolled over once again having been unwinding over the past few week. Momentum suggests there is further downside potential in this current move. If you drill down into the intraday hourly chart you get a gauge of the series of lower highs over the past week, with the falling 89 hour moving average now acting as an excellent basis of resistance (currently falling at $89.06). There is an initial band of resistance that comes in between $88.20/$89.00 and any rebound that sees a sell signal in that range should be seen as a chance to sell. The latest key lower high on the intraday chart comes in at $90.74.

WTI   09102014

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