19/02/2015: Slightly dovish FOMC minutes sustain the prospect of a dollar correction

Market Overview

The announcement of the Federal Reserve meeting minutes took the markets a little by surprise. Following on from a slightly hawkish lean in the FOMC statement, the minutes were still showing a degree of caution when it comes to the Fed tightening and suggested that there was no desire for an imminent rate hike. This caused a slight move away from the dollar to give Wall Street a small boost into the close and resulted in a rebound on gold. The issue of Greece and its bailout program that is due to expire on 28th February continues to rumble on, but at least the ECB agreed to the emergency funding of €3bn to help support ailing Greek banks that continue to haemorrhage cash as investors withdraw deposits.

Wall Street closed last night very slightly lower on the day with the S&P 500 lower by just 0.1%. Asian markets were muted overnight with volume light due to the lunar new year, but the Nikkei was 0.4% higher. European markets have started on slightly weaker today.

In forex trading, there is still some support for the euro and sterling again slightly up on the dollar, whilst it is only really the Aussie that is slightly struggling today. Gold is holding up after yesterday’s late rebound.

Traders will not have too much to guide them today so once more this could be a day of consolidation as we await news of the Eurogroup and Greece discussions. At 1230GMT, the ECB releases minutes of its meeting that involved the engaging of QE and it will be interesting to see the views of some of the less dovish members of the governing council. The US lead indicators are released at 1500GMT, with a slight dip to +0.3% expected.

Chart of the Day – AUD/USD

The price action on the Aussie dollar remains interesting. Whilst the daily chart does not show the pattern in great detail, there is the prospect that this trading phase could turn into a base pattern. I have talked previously about the resistance around 0.7850 being key and despite a small spike to 0.7875 the resistance remains intact. The daily chart shows that the Aussie now has sharply improving Stochastics and has just formed a bull crossover on the MACD lines. Now any rebound would still be counter trend (a big caveat) and there is still a big overhead resistance at 0.8030. A close above 0.7850 would complete the pattern that would imply a return to the resistance. The intraday hourly chart shows there is still much to do in the near term to persuade the bulls to breakout. However the outlook of positive hourly momentum suggests that pressure on 0.7850 is building. The Aussie could be on the brink of a continued near term rally. There is now an interesting intraday pivot level support around 0.7750 which if this breaks down then the outlook would deteriorate once more.

AUDUSD   19022015

EUR/USD

The period of range trading on the euro continues and from what we saw yesterday there is little sign of it ending any time soon. Yet another small candlestick with a mixed outlook does little to persuade the market will be breaking in any specific direction, with the key support at $1.1260 and resistance at $1.1530 both still easily intact. The technical indicators remain on a slow drift higher in a way that still suggests to me that this is a trading phase that is helping to unwind the oversold momentum. Once again, looking at the intraday hourly chart the ranging means that you can play euro on a very short-term basis using the classic overbought/oversold signals on both the RSI and Stochastics. The last few days has seen the euro develop an even tighter range within the bigger range and that support comes between $1.1320/$1.1450. This still has the look of a chart that is waiting for a decisive fundamental event to drive a breakout. We await the outcome of the Eurogroup discussions with Greece.

EURUSD   19022015

GBP/USD

The latest positive candlestick higher has now got Cable within touching distance of the bottom of the next band of resistance $1.5485/$1.5620. The recovery continues to go well, with momentum indicators pushing well into positive configuration (RSI above 60, MACD lines above neutral and Stochastics above 80) as the rate continues to pull clear of the old downtrend and the support of the rising 21 day moving average ($1.5217). Taking the breakout above $1.5270 as a completed base pattern gives a conservative target of $1.5550 and this seems well within reach currently. The intraday hourly chart shows a well-constructed stepped advance over the past couple of weeks, with first of all key support left at $1.5200 and subsequently around $1.5300/$1.5350 as the rate pushes higher. Trading above all the moving averages, hourly momentum also remains positive and suggests that any weakness should be seen as a chance to buy. Losing $1.5300 support would be a warning that the bulls are beginning to lose control.

GBPUSD   19022015

USD/JPY

The movement on Dollar/Yen has almost become a proxy for the broad dollar in recent weeks. A period of consolidation, followed by a sharp move higher (on Non-farm Payrolls) only to then be checked again before failing to regain the upside initiative. The bulls have just not been able to get going again, as we see once more the appearance of a corrective bearish candle yesterday. No damage has been done to the daily chart and the momentum indicators still just retain a very slight bullish bias, but it is a struggle at the moment. The intraday hourly chart shows the sharp fall on the pair yesterday (on the slightly dovish Fed meeting minutes) which have once again dragged the dollar back and close to the near term key support around 118.30. There are no imminent signs of a downside break (which would I believe significantly change the outlook of both the daily and intraday chart) as the momentum indicators start to bottom out again. Playing Dollar/Yen on a near term basis is difficult and with it showing continued range-play tendencies maybe wait for a break either below 118.30 or above 119.40, or use the momentum indicators to trade the minor range.

USDJPY   19022015

Gold

Although the charts show a continued weak outlook for gold there has been the first real reversal signal that we have seen since this 4 week correction began. A bull hammer candlestick was formed yesterday as gold hit a low of $1197.60 only to then rally intraday to close at $1212.60 which was the high of the day. This means that today’s candle is important to the near term outlook as a close below $1212.60 today would put doubt in the validity of the reversal pattern. Momentum indicators, for now, continue to drift towards bearish configuration and we must view the hammer with a degree of caution for the bears. A feature of bear market moves is that there will be lower highs as well as lower lows and I have been expecting the next lower low as likely to come in the range $1216.50/$1225.10. The intraday hourly chart shows that we have now had a bounce into this range and if there is now a decisive sell signal this could be the opportunity. Clearly the appearance of a hammer on the daily chart adds the element of doubt, however for now I am still with the bears. A move above resistance at $1236.50 would question the bear phase, with the 4 week downtrend today coming in at $1240.

Gold   19022015

WTI Oil

Once again the volatility has come through on WTI as a sharp fall in the price has pulled it back away from a test of the $54.24 key range high. The Fibonacci retracements of the $54.24/$47.36 decline still continue to play an interesting role in turning points within this range that has formed. A 61.8% retracement comes in around $51.60, with the 50% retracement at $50.80 picking out the key near term low from Tuesday to the pip. However, having broken below $50.80 now re-opens support of the 38.2% retracement at $50 and then 23.6% at $49. Using the hourly RSI to play the range is still possible, buying around 30 and selling around 70, with the latest dip toward 30 suggesting this becomes now an opportunity to buy. However, be mindful that there is a slight bullish bias within the range and an upside break is still expected at some stage. In this way, I would prefer to buy the dips than playing from the short side.

WTI   19022015

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