The US dollar is back under pressure again today after the FOMC disappointed the hawks and did very little to talk up the prospects for a rate hike at the March meeting. With Donald Trump’s protectionist policies dragging the dollar lower since the inauguration, traders would have been looking for the Fed to bring some sort of balance to support the dollar. However, the Federal Reserve monetary policy update was something of a non-event. No hike, just as expected, and also there was very little change to the FOMC statement which could have been used to hint at a possible hike in March. “Measures of consumer and business sentiment have improved of late” but this was in effect the only real upgrade of language. Furthermore, the Fed noted that some market based measures of inflation were still low, which was seen as a negative for yields and the dollar. The market is still expecting two hikes this year, despite the Fed’s December dot plots pointing to three, and this FOMC meeting has done little to change that.
Wall Street closed around the flat line (S&P 500 gained less than 1 point at 2280), whilst Asian markets were broadly lower, with the Nikkei -1.2% as the yen strengthened again. European markets are also mildly lower again. In forex, the dollar is weaker again across the major pairs, with the Aussie the standout performer on the back of better trade data. Gold is supported once more and silver also higher as the weaker dollar helps the commodities. Oil has just unwound a touch in the early trading.
The economic data is more UK based today, so sterling traders will be watching. The UK Construction PMI is at 0930GMT and is expected to dip back slightly to 53.8 (from 54.2 last month). However the main event will undoubtedly be the Bank of England’s monetary policy decision and Quarterly Inflation Report at 1200GMT. There is an expectation of a unanimous decision to keep rates on hold at +0.25% and no increase in asset purchases. However, the attention will be around the BoE’s growth and inflation forecasts which are likely to be increased given the recent strong showing of the PMIs and inflation. Over in the US, the Weekly Jobless Claims are expected to drop to 251,000 (from 259,000 last week).
Chart of the Day – USD/CAD
The medium to longer term outlook is under pressure as the key support at 1.3000 comes under ever more scrutiny. The long sequence of higher lows throughout 2016 was broken by the January decline that breached 1.3080. Although a low was formed at 1.3016, the market has since broken back below the key medium term support at 1.3000 which had been holding up the big corrections since September, however the bear candle on Tuesday suggested that downside pressure is mounting. An attempted rally yesterday failed at 1.3102 and the bears pulled the market back into the close and the downside is continuing today. Looking at the bearish configuration on the momentum indicators the bears are in control as rallies are being seen as a chance to sell. A close below 1.3000 would open the next support at 1.2818. The hourly chart shows how the falling 144 hour moving average is resistance (currently around 1.3090) whilst the hourly momentum indicators have rolled over to give renewed sell signals. There is a resistance band 1.3080/1.3100 with further resistance in place at 1.3125 and 1.3170 is key. The importance of a break below 1.3000 would suggest that confirmation of a break is necessary.
After the breakout of a strong bull candle on Tuesday, yesterday’s candle formed a slight retracement, however the strength of the uptrend remains and the pair is still on course for a test of the $1.0850/70 resistance. The momentum indicators continue to pull higher and suggest that near term corrective moves are a chance to buy into this rally. The RSI is still above 60, whilst the Stochastics are also positively configured. The hourly chart shows a volatile session, with first dollar strength (on the stronger ISM data) tempered by a mild dollar weakness later in the session with the Fed announcement. The pair has looked to regain some upside initiative and the bulls will again be eying Tuesday’s high at $1.0810. Hourly momentum is positively configured and there is little reason not to continue to buy into ant weakness. Support is initially at yesterday’s low of $1.0730, whilst $1.0710 is still an old support which is again supportive.
Having regained some poise, the bulls are again looking to breakout to the upside after a second consecutive strong positive candle was completed yesterday. The January high at $1.2672 has been breached on an intraday basis but the bulls are still yet to decisively claim a breakout. However the daily momentum indicators are strongly configured and the corrections are being bought into. The support at $1.2410 is increasingly important now, coming around the neckline of the big bullish breakout (neckline is at $1.2430). A closing break above $1.2672 would open the next resistance at $1.2727 but also the key medium term range high at $1.2775 would come back into play again. The hourly chart shows how corrective moves are being bought into now with the old near term resistance at $1.2600 now supportive and below that $1.2540.
The market is setting up for another test of the old support around 112.50. The support was breached on an intraday basis on Tuesday, only for a rally to pull the market higher and avoid a closing break. However the bulls lost the impetus in a rebound yesterday to post a candle with a close well off the highs of the day and the dollar weakness today has pulled the market back again towards the support. The momentum indicators are negatively configured and suggest that rallies will struggle, with the RSI consistently failing under 50 and the MACD lines still falling. However this will still be a range play between 1120.5/115.60 (as it has been for the past few weeks) until there is a close below 112.50 and preferably now a close below 112.05. The hourly chart shows resistance again forming around 114.00 yesterday so clearly this is a level the market is increasingly watching. There is initial resistance at 113.15/113.35 today. Below 112.05 re-opens 111.32 support.
The push higher endured a choppy day yesterday as the dollar found some impetus from the positive ISM data, however the selling pressure on the dollar into the close allowed the gold bulls to regain a degree of control. The market rebounded from $1197.70 back above $1200 and is once more eying the resistance of the recent highs just under $1220. The daily momentum indicators are still broadly positively configured, however until there is still a nagging doubt with the lack of conviction in both the RSI and MACD lines, so a until closing breakout above $1220 is posted then there will be a degree of caution. The hourly chart shows the market is trending higher, but there is less conviction in the moves, with the hourly RSI turning lower at 70 and Stochastics rolling over. This may be a move to give another chance to buy, with the $1200 level still an aspect for this chart as intraday dips are being bought into.
The moves in the oil price in the past few days shows how uncertain the near term outlook is. In the past four sessions there have been two negative and now two positive candles. However the market is still holding above the $52.00 support and there is still a mild positive bias to the daily momentum. The hourly chart shows an erratic session with the EIA crude oil inventories build hitting sentiment before the mild dollar weakness of the FOMC decision pulled oil higher again. However, the close above the $53.50 resistance has helped to improve the outlook again, to form a bullish one day candle, but there needs to be a closing break above resistance at $54.05 that would begin to make a significant improvement to the outlook. The daily momentum is mildly positive but all rather benign and pointing to the continuation of a range play.