It would now appear that the perception of the US dollar is everything now. It is impacting across the forex majors, across commodities and is feeding though into equity markets. Until there is some sort of exogenous catalyst this is likely to continue.
The movement in the financial markets across the asset classes has been very interesting in the past few days. It seems as though everything is taking its lead from the performance of the US dollar. The markets have become data dependent following the FOMC meeting and it is difficult to see what will change this until the Federal Reserve decides to hike rates.
Take the movement yesterday for example. This was the first serious batch of data releases that had come since the FOMC decision a week ago. There were signals that across the board of positive data. US inflation (CPI) ticked up, the New Home Sales were over 7% higher and the flash manufacturing PMI was also better than expected. The result? The dollar showed some strength. This stalled the recent dollar correction and saw trends consolidating across markets. EUR/USD, Gold and Wall Street all consolidated their recent rallies (which had undoubtedly been previously driven higher by the dollar correction).
Today, the trend of dollar weakness has been gathering momentum through the European session. With EUR/USD driving higher, the gold price has recovered off its lows and interestingly the DAX (which has previously been correcting due to the rebound in the euro which negatively impacts on the high weighting German exporters) has once again been in decline.
Yesterday we saw some consolidation around some key pivot levels:
It would appear that the “trend is your friend” still on all of these markets. With the dollar correction regaining some traction today, the latest moves should be accentuated following the US Durable Goods data:
What will now be interesting is if the initial dollar negative move in the wake of the weaker than expected US Durable Goods Orders continues throughout the afternoon. There is little to hold back this further dollar correction now for the rest of the day.