Last updated: May 3rd, 2017 at 09:58 pm
The Federal Reserve was never going to hike rates yesterday. This meeting was all about whether the FOMC would use the statement to prepare the market for a potential hike in September or whether the prospects of a rate hike would be deferred further again. The FOMC decision has initially hit the dollar, but it will be interesting to see if the move lasts. The mild shift to a more hawkish language arguably leaves the door ajar for September but hardly gives a decisive signal. With the Fed so cautious historically, you would think that only a decisive signal would really be required after such a period of procrastination. The Fed is not one to play “hard to get”. Noting that near term risks to the economic outlook have diminished and Esther George dissenting in voting for a hike was a mild hawkish lean but nothing more. After initial mild strength the market turned on the dollar once more and profit taking after a period of strength has been seen. However I expect the market will view any move against the dollar as merely short term and the support for the greenback will resume as the Fed is still the only hiker in town. I remain of the view that the Fed will move in December, with Fed Funds futures still in the balance (currently around 47%).
Markets have moved off the Fed with Treasury yields reacting lower and the dollar also weaker, whilst precious metals have gained strongly. Equities have been rather flummoxed and Wall Street again closed around flat with the S&P 500 -0.1%. Asian markets have been broadly weaker with the Nikkei 225 off 1.1% as the yen has strengthened again. This comes in front of a potentially huge announcement from the Bank of Japan early tomorrow in which a package of further easing is expected but may not meet lofty expectations. European markets are mildly lower at the open today.
In forex markets the US dollar still seems to be under some pressure as the European session starts to react to the Fed meeting, with the dollar weaker against all of the major currencies, with one exception being Sterling which is weaker in early moves. Gold and silver remain supported after yesterday’s strong gains, whilst oil is trading around the flat line after five consecutive days of selling pressure.
Traders have little to impact decisions from the economic calendar today aside from the US weekly jobless claims at 1330BST which are expected to be 261,000 (up from 253,000 last week). The Bank of Japan announces monetary policy overnight tonight and this will also weigh on traders’ minds as the day wears on.
Chart of the Day – Silver
The precious metals have been correcting back in recent weeks but now the bulls seem to have resumed control again. Yesterday we saw a rebound on gold, but the bigger move was on silver which pushed above the initial resistance at $19.94 and above $20.00 again. The move on the momentum indicators was also encouraging with the Stochastics giving a bullish cross higher, whilst the RSI which has again been consolidating above 50 has also turned back above 60. With the strong bullish candle, a close above $20.00 means that there is the direct prospect of a test of the resistance between $20.54/$20.67 today, the highs from mid-June. The intraday hourly chart shows a strong breakout of a 10 day downtrend and hourly momentum indicators increasingly positively configured. The hourly chart also shows support in a pivot band around $20 which will be eyed as a buying opportunity. Silver is preparing for a retest of the key high at $21.10.
Despite the hawkish lean from the Fed, the reaction, the dollar has come under pressure which has sent the euro higher. There has subsequently been a bullish outside day which has taken the euro through the resistance at $1.1058 and into the pivot band $1.1050/$1.1100. Adding 70 pips on the day the bulls have reacted well but there needs to be a continuation of this move to prevent this from being yet another rally that simply gets sold into. The improvement in the momentum indicators has seen the RSI pick up back towards 50 and the Stochastics also turn higher, however the medium term trends lower in the momentum indicators remain intact and unless we see a continuation of yesterday’s rally then the bulls could fail again. I would still be expecting another lower high in the pivot band $1.1050/$1.1100, with the resistance between $1.1164/$1.1188 again key. The hourly chart shows $1.1020 which has been a near term pivot could again be supportive but I am now looking for another chance to sell.
The near term range play has one again had a minor shot in the arm from the support around $1.3060 in the wake of the dollar weakness following the Fed. However, I still see this as unlikely to gain too much traction before the bears return once more. Yesterday’s bull candle added around 90 pips of a rally however already there are signs this morning of this move running out of steam. I still look at the momentum indicators and see the bulls are struggling on every other time horizon other than the very short term. The RSI is limping in the low 40s whilst the Stochastics are fluctuating also around neutral, both of which reflect this range of the past two weeks between $1.3060/$1.3275. I see this move towards the upper portion of this range as an area likely to find another lower high and with the rally failing overnight at $1.3247 we may have already seen it. The hourly chart does show an interesting mid-range pivot around $1.3160 which has played a role in the past week and could again be used today. However I expect a move below this and a subsequent retest of $1.3060 in due course.
The battle for control on Dollar/Yen continues (as I believe it will until the BoJ give us some decisive direction tomorrow morning) as the candles of the past few days show a series of fluctuating candles. The latest move is to unwind the gains of yesterday and the dollar has weakened (yen has strengthened) in the wake of the Fed. The daily chart shows that the recent rally on Dollar/Yen has rolled over in the past week and this is coming under the resistance of the downtrend channel. The Stochastics have confirmed their negative signal and the MACD lines are now beginning to roll over too. The hourly chart shows the pair is back to test the pivot around 104.60 today and a decisive move back below would re-open the near term support at 104.00. The Fed meeting has also seen a lower high posted at 106.05 (under 106.53). The BoJ is certain to drive direction tomorrow morning but in front of that meeting announcement the Dollar/Yen pair looks to be classically selling into the strength on the premise that the BoJ are likely to disappoint. We shall have to wait to see what tomorrow brings.
The selling pressure on gold has been slowing in recent days and now the Fed meeting has given the precious metal a boost in what looks to be the beginning of the next leg higher. A bullish candle formation has burst through the resistance at $1335 to re-engage the bulls. This has left the support at $1310.50 which has come in marginally above the $1306 key long term breakout. The momentum indicators have also reacted with this move, with the RSI holding above 50 during the recent correction, the MACD lines looking to turn up around neutral and most importantly the Stochastics giving a crossover buy signal (the previous two similar signals of March and May both signalled the end of the selling pressure. The hourly chart shows that $1335 will be seen as a basis of support for any unwinding move today and a near term “buy zone” for a correction could be seen between $1325/$1335 and I now expect intraday corrections to be bought into. Initial resistance is yesterday’s high of $1342.20 whilst a move above $1346.70 resistance would add to the bullish intent. The July high is $1375.
The oil price has been falling recently as a series of bearish factors play out, with a stronger dollar, concerns over the economic impact of Brexit and also worries that supply may have bottomed. The EIA inventories report showed a surprise build in crude oil stocks last week and this is certainly not going to help the bulls on oil. The bears are in control for now and the selling is gathering pace. The downside break from the downtrend channel is a real concern, whilst the support of the May low around $43.00 was taken out earlier this week and now a further minor support at $42.40 has also been broken. The bulls will be hoping that regard will be given to the 38.2% Fibonacci retracement of the big $26.05/$51.67 bull run at $41.88, however with the momentum indicators accelerating lower this is difficult to see. The RSI is the lowest it has been since February and the Stochastics are equally as bearish. I tend to say that rallies are a chance to sell but perhaps I should qualify that further by adding the word “intraday”. Intraday rallies are now seen as a chance to sell, with resistance growing between $43.00/$43.70. The next real price support comes in at $37.60 which was the mid-April low.
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