Last updated: May 3rd, 2017 at 09:58 pm
In the wake of the uncertainty in last night’s FOMC statement, we are no closer to knowing whether a March rate hike is on the cards or not and does little for market direction. The FOMC is “closely monitoring” the global economic and financial developments, but the statement seemed to be less negative than the September one which cited international developments as a reason to hold off from the first rate hike. However, it is difficult to see the Fed moving in March if we see similar conditions then. The reaction on the bond markets would suggest that the market is fairly settled in that view, and whilst there has been some minor re-positioning in the forex markets the outlook remains fairly similar. The sell-off in equities came amid the suggestion that growth had slowed, although the 10 year Treasury yield (where you would expect this view to show up) has barely been impacted overall. Therefore the net effect of this meeting is likely to be limited.
Equity markets reacted with caution in the wake of the FOMC decision, with Wall Street off into the close (S&P 500 down 1.1%), whilst the Asian markets have also been mixed to slightly weaker overnight (Nikkei down 0.7%). The European markets have opened slightly weaker . Forex markets have shown a marginal dollar weakening on the back of the Fed without too much selling pressure and in many ways it is as you were. Sterling is trying to recover, as is the Aussie and the Kiwi with the latter running off the decision by the RBNZ to stand pat.
Look out for the first reading of UK Q4 GDP today which is announced at 0930GMT and is expected to come in at 0.5% again for the quarter. There is also US Durable Goods Orders at 1330GMT which is expected to be +0.1% for the month on an adjusted basis. The weekly jobless claims are also at 1330GMT and are expected to be 282,000.
Have we got a base pattern on the Aussie? In the past three weeks the Aussie dollar has formed support at $0.6825 and subsequently rallied. The rebound pushed through $0.7050 yesterday on an intraday basis, which was a level of resistance which has now become the neckline of a head and shoulders reversal. The move did fail to close above the resistance and in the wake of the FOMC decision did close a touch disappointingly. However the bulls still seem happy to return today and once more a move above $0.7050 has been seen, and a close above would complete the pattern. Daily momentum indicators have been improving in the past week with Stochastics advancing strongly and the MACD lines now having completed a bull crossover. The completed pattern would imply $0.7225. However, there is a key test overhead which needs to be overcome for the bulls to be in control again, with the resistance at $0.7090 (the old key December low) whilst the RSI is also back around 50 (a level where the sellers have historically used bear rallies as a chance to sell). A move above these two levels would subsequently be a positive. There is now decent near term support around $0.6990/$0.7000. The key reaction low is at $0.6915.
Not much has changed in the wake of the FOMC statement yesterday. The daily candlestick was once more a mildly positive move which has dragged the euro back into the middle of the recent trading band. There has been little real change to the outlook of the momentum indicators which retain a mild bearish bias which suggests this rebound will not be long lasting and we are likely to once again see a drift back lower towards the support band around $1.0810 again. The hourly chart shows a sharp 60 pip bull candle on the FOMC announcement is being retraced in the early moves today and we are almost back to square one. There is a near term pivot band around $1.0860 and a move below that would open the lows once more. The neutral outlook even on the hourly momentum suggests that the chart is still looking for direction, something that the Fed has clearly not given. There is intraday resistance now at $1.0920 before the band at $1.0950/90 comes in. Continue to play the range.
Despite the best efforts of the bulls on Tuesday, Cable remains in the 6 week downtrend and is struggling to build the recovery. It is interesting that the correction yesterday actually came in front of the Fed, with the big announcement impacting little on the chart so far. There is clearly a battle playing out. The bulls have failed to breakout above the resistance at $1.4350 (which would complete a base pattern), but the bears cannot regain control either as the pivot band which is now supportive at $1.4235 is still holding up. The hourly momentum indicators are going to be interesting here, now looking as though the selling pressure from yesterday’s retracement has played out. Especially watch the hourly RSI, which if it falls below 30 again would be an indicator that the bears are regaining control. So for now the outlook on the hourly chart is still very much uncertain. The bears would be in confirmed control on a move below $1.4170 which would re-open the $1.4080 low.
The consolidation continues but the bulls are straining to gain control again. I spoke yesterday about the prospect of a breakout above 118.87 building a bull flag. This looked to be playing out in front of the Fed yesterday, but an uncertain FOMC statement has dragged the pair lower again (but around 50 pips) and questions whether the bulls can sustain a breakout. However, the pressure is building to the upside now and the daily momentum is increasingly improving. A close above 119.00 would certainly now suggest the bulls are ready to push higher. The hourly chart shows that if another higher low can be formed above 118.00 today then there is some progress being made. The key support near term now comes in at 117.63, as a breach would complete a top pattern. A close above 119.00 opens 120.00.
The run higher continued yesterday, driven by the reaction to the FOMC statement which added over $10 in the hour following the announcement. The question is whether the bulls can sustain the move as the price has subsequently been drifting back lower again. The daily chart shows a solid bull move in progress now with decent gains which continue to move back towards the next resistance at $1136.50 and the key overhead supply around $1142. This is reflected in the hourly chart which shows a strong uptrend channel over the past two weeks. However, momentum indicators are just beginning to lose a bit of strength, with slight negative divergences on hourly indicators. The initial support is at $1114.50 with the breakout support around $1110 increasingly becoming key to the channel continuation.
The oil price continues to be the key driver behind market sentiment, and the intraday turnaround yesterday has again driven traders towards riskier positions. The second consecutive strong bullish candle now puts the chart at a key crossroads. The original rebound high of the rally at $32.75 is under threat, whilst the RSI has also unwound back towards 50. Not only that, the resistance of the falling 21 day moving average (at $32.30) is also being tested. The outlook is therefore close to turning far more positive. A close above $32.75 would open the next key barrier at $34.00. The volatility in oil is such that the near term outlook can turn extremely quickly, but the way the chart is forming now, corrections are finally being bought into. The initial support comes down at $30.15 with $29.25 now key. The longer that oil holds above $30 the more confident traders will become.
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