10/04/2014: Dovish leaning from the Fed improves risk sentiment once more

Market Overview

The set of minutes from the latest meeting of the Federal Open Market Committee do not appear to have been as hawkish as Janet Yellen alluded to in her press conference two weeks ago. Back then, stocks and bonds sold off while the dollar rallied. The opposite is now underway as the minutes have suggested that markets got too far ahead of themselves in their concerns that the Fed might tighten monetary policy sooner than had been anticipated. Yesterday we saw Wall Street close around a per cent higher, while shorter dated treasuries also rallied strongly (pulling yields lower).

This improved sentiment was unable to have a major impact on Asian markets after Chinese trade data showed a slowdown of exports which fell 6.6% against an expectation of 4% growth. Stock markets were broadly flat though as the news from China and the US appeared to balance out sentiment. European trading is showing slight gains in early trading.

Forex trading benefited immediate following the Fed minutes with the improved risk appetite that comes with the implication that the Fed will keep easy monetary policy for a longer time. The US Dollar Index is slightly higher this morning, with a mix of performance against the majors. Slight gains against the Euro, and Swiss franc are balanced by losses against the Yen, and Aussie and Kiwi dollars.

Economic focus for the day will be on the Bank of England rates decision at 12:00BST and the US  weekly jobless claims at 13:30BST.

Chart of the Day – USD/CAD

The decline of the US dollar in the past few days has also now broken a key level against the Loonie which now suggests that a broader correction could now be seen on USD/CAD. Following yesterday’s sell-off of the dollar, the failure of the key February low at 1.0906 has now completed a large double top pattern on the daily chart. There has been a death cross on the 21 and 55 day moving averages (a bearish near to medium term signal), while the daily momentum indicators are increasingly negative. The completed top pattern suggests that there could now be a move back towards the December trading range of 1.0556/1.0737 There has been a slight bounce overnight, but there is now a resistance band between the neckline at 1.0906 and 1.0998which should be seen as a chance to sell into. It would now need a move above the April high at 1.1070 to suggest that the downside pressure had been averted.

USDCAD   10042014

EUR/USD

The outlook for the Euro has now changed from one where rallies were being sold into, to now be one where the rate is advancing on a near to medium term basis. EUR/USD has continued to significantly improve as yesterday’s breach of the key reaction high of $11.3819 on the daily chart suggests that the corrective phase is over. Daily momentum indicators are now all in an improving state, whilst the rate is trading above all the daily moving averages and a test of the next key high from 24th March at $1.3875 is now on. The intraday chart shows that having already broken above the key resistance at $1.3819 earlier in the day, EUR/USD jumped once more on the announcement of the Fed meeting minutes. The rate is now using the rising 21 hour moving average as the basis of support currently around $1.3832. Intraday momentum indicators are positive and now suggest that corrections should be bought into. There is now good support in the band $1.3778/$1.3810 to use as support for long positions.

EURUSD   10042014

GBP/USD

Huge gains have been seen on Cable in the past two days, adding over two big figures just in the past two days has decisively changed the outlook bullish once more. However the rate was though unable to breach the key high at $1.6822 from the 16th February before seeing some slight profit-taking in Asian trading overnight. Momentum on the daily chart remains very strong with Stochastics only just moving above 80, the RSI in the high 60s and MACD positive, however moving to the intraday hourly chart the momentum indicators are showing the possibility of some bearish divergences which might be something to be cautious of. If the rate now begins to consolidate below $1.6822 once more this could suggest a rejection of this level. We have got the Bank of England rates decision today, although it is not expected to make any move. After two days of such significant gains on Cable, the prospect of a correction is growing.

GBPUSD   10042014

USD/JPY

Yesterday was a day largely of consolidation after three days of significant losses on USD/JPY. The consolidation has come at the rising 144 day moving average which continues to be tested today as the rate has come under selling pressure once more in Asian trading. The momentum indicators on the daily chart are currently fairly neutral and do not necessarily reflect any real selling pressure that would suggest a downside break is imminent. However, intraday, the pressure is still on with bearish momentum just unwinding to neutral. This could mean that the support at 101.52 could come under further scrutiny. Currently the rate is ranging 101.52/102.15 and we look for a break either way for the next big directional move. Below 101.52 would open the key March low at 101.17.

USDJPY   10042014

Gold

Although there was a slight breach of the recovery uptrend channel yesterday, there was a sharp move higher following the announcement of the dovish FOMC meeting minutes and the gold price has once more regained its upside impetus. Pushing above $1317.25 overnight, the price is now within striking distance of the next resistance level at $1320.24. The daily chart continues to improve with the Stochastics advancing, RSI pushing nicely above 50 again and the MACD now having given a bullish crossover. The intraday momentum indicators are in positive configuration, but maybe also suggest that there could be a minor correction before further upside is seen. There is now good support around a previous breakout at $1307 which is a good basis of support.

Gold   10042014

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