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Trump’s unconventional Fed criticism drives dollar profit-taking


Market Overview

Donald Trump is never far away from the minds of traders. The dollar has been consistently strengthening throughout this week, but the dollar bulls have been stopped in their tracks by an unanticipated interview with Donald Trump on CNBC. In this interview, Trump talked about the fact that the strength of the dollar was a problem and that he was unhappy with the tightening of the Federal Reserve. Making comments on the actions independent Federal Reserve are certainly unconventional but this unconventional President “doesn’t care”. The knee jerk reaction/speculation is the implication that Trump is trying to hold the Fed back from further tightening and this has a knock on impact on the dollar. Treasury yields fell across the curve and the dollar has slipped back. The White House felt the need to reiterate the independence of the central bank, and it will be interesting to see how long this move against the dollar lasts for (I suspect not too long). However for now, there is an excuse to take profits on long dollar positions and this may continue in today’s session. Equities on Wall Street also suffered on the interview and there is a mild legacy of this in today’s early moves with traders concerned by Trump’s decision to wade into monetary policy issues which could be a dangerous precedent.

US flag what's next

Wall Street closed lower after Trump’s comments, with the S&P 500 -0.4% at 2804, with futures ticking a slight degree further lower today. Asian markets have been mixed to lower (Nikkei -0.3%) whilst European markets are mildly lower in early moves today. In forex markets, the dollar is slipping lower by 0.1% to 0.2% across the majors, with the exception of sterling which continues to lag in performance. For commodities there is a degree of support for gold, whilst the oil price is also slightly higher.

It is a fairly quiet end to the week on the economic calendar. The size of the Eurozone Current Account surplus for May is at 0900BST and is expected to slip back slightly to €27.2bn (from €28.4bn in April). UK Public borrowing requirement for June is at 0930BST and is expected to be +£3.6bn (slightly higher than the +£3.4bn in May, but would be much better than the +£5.7bn in June last year). Canadian inflation is at 1330BST and is expected to show headline CPI increasing to +2.4% (from +2.2% last month). Aside from the economic calendar it may also be interesting to keep an eye on the G20 meetings of finance ministers and central bankers, with the communique at the end set to get the headlines.

 

Chart of the Day – USD/CAD   

It is always work keeping an eye on the oil price when looking at the Canadian dollar, and it is interesting to see that the renewed USD/CAD strength seems to have come as not only the US dollar has strengthened but also the oil price has come under pressure. On the technicals of USD/CAD, the retreat over the past month has seen the market unwind to the support of the three month uptrend channel before forming support at 1.3062. The move has seemingly just been a retreat into the support band of the key breakouts 1.3065/1.3125 which houses underlying demand. A near term breakout (and close above) the reaction high at 1.3220 in yesterday’s session (with a strong bull candle) now opens for a renewed sense of improvement within the channel. With a higher low at 1.3105 above 1.3062 and the next real resistance not until 1.3385 the recovery is progressing one more. With the momentum indicators all turning up again within strong medium term bullish areas, the outlook now looks to be a buy into weakness once more. The uptrend is running at 1.3125 today which is bang on the supportive element to the breakout above the March high, whilst the 1.3220 breakout is supportive giving a near term buy zone between 1.3155/1.3220.

 

EUR/USD

There is a negative drift on the euro at the moment as the market has slipped into a mild downtrend channel over the past couple of weeks. However there still seems to be a lack of intent to really put the selling pressure through the euro at the moment. There was an opportunity to drag the euro back towards the key range lows of $1.1505 yesterday but this was passed up as the bulls closed slightly higher on the day and the market has remained supported again early this morning. Momentum indicators reflect this slight negative bias but without any real aggression behind the move. The top of this mini trend channel comes in at $1.1705 today, whilst there is an old pivot around $1.1720 that will also cap the upside. This early rally needs to pull above $1.1745 to drive the intent higher, whilst $1.1790 is near term key. The hourly chart shows the improvement but needs to be held throughout today to build a sense that this is something more than just another near term rebound to be sold into within the medium term range.

 

GBP/USD

Since topping out in early May the market has been within a trend channel lower. The move in the past few sessions of bear candles has broken below the supports at $1.3050 (June low) and $1.13025 (October/November lows) to breach the psychological $1.3000 level. Although the market rebounded slightly into the close there is still a real downward pressure on Cable that suggests any unwinding rally remains a chance to sell. There is now a band of resistance between $1.3050/$1.3100 which is overhead supply now to restrict a technical rally. There is a degree of support that has built overnight but the hourly chart suggests that much more needs to be done to believe this is anything more than a move that unwinds near term stretched momentum. Rallies still need to be treated as a chance to sell for likely further pressure on yesterday’s low at $1.2955, whilst a close below $1.3000 would then open multi-month supports at $1.2850 and $1.2775.

 

USD/JPY

The uptrend of the past three and a half months on Dollar/Yen remains strong, but is down at 110.60 today. Furthermore, the market is trading over 100 pips above the 21 day moving average (currently 111.20) which has tended to induce a period of consolidation or mild correction within this uptrend. Yesterday the market hit a new multi-month high at 113.15 only to then correct back and leave a bearish engulfing candlestick pattern. Given how small the previous day’s session was, perhaps the validity of this near term sell signal is slightly reduced, however the bulls seem to have just taken a step back for now. A close below the near term reaction low at 112.20 would suggest the market is set to slip back towards the key breakout support 111.00/111.40 and also retreat within the uptrend. Momentum indicators have rolled over a touch but this still looks to just be a near term correction within the medium term uptrend. Furthermore, shorting within such a strong trend is risky as this could easily simply turn into a sideways consolidation.

 

Gold

Another negative session and the market continues to fall back towards the next key support at $1204.50. Trending lower over the past month, the bearish configuration of momentum indicators suggests that rallies remain a chance to sell, with the recent downtrend falling at $1242 today. An intraday bounce of $11 off the lows yesterday is a slight caveat for the idea of constant weakness, however momentum indicators are configured to suggest that any such technical rebounds will continue to be sold into. The hurly chart shows resistance at $1229 near term needs to be watched initially, but the resistance around $1236/$1238 is considerable overhead supply now. On any hint of renewed dollar strength the gold price will come under pressure once more and a retest of the $1211 low is likely before $1204.50.

 

WTI Oil

The prospects of a sustained bull recovery have been done no harm at all following a strong session yesterday. The fact that the initial selling pressure was not seen as a trigger for renewed bear control, but as an opportunity to buy, should be seen as a sign of intent from the bulls. The market has now left the twin support at $67.03 and now pulled decisively higher. The move above initial resistance at $69.5/$69.55 is also a positive. Momentum indicators are now beginning to edge for a turnaround too, with the RSI ticking towards 50, the MACD lines beginning to shape to bottom above neutral and also the Stochastics ticking higher. The hourly chart shows an improving configuration now with the RSI finding lows above 35 in the past two sessions and pushing on 70, whilst the hourly MACD lines are now looking to hold above neutral. The bulls will now look to hold support for another higher low in or above the range $67.80/$69.00 for continued recovery.

 

Dow Jones Industrial Average

The uptrend of the past two weeks has been broken by a negative session on the Dow. For now this move looks to be a consolidation of the breakout above the 50% Fibonacci level at 24,980 which is now a basis for support, however it needs watching. Momentum indicators remain in their recovery mode still with the RSI around 60, MACD lines above neutral and Stochastics strongly configured. The key trigger for the resumption of a corrective outlook would now be a close below 24,980, so a response from the bulls will be important today. The hourly chart also shows that whilst the hourly RSI continues to pick up around 40/50 the market will be paying out a buy into weakness strategy, however if the hourly MACD lines drop consistently below neutral this would be a significant warning. There is little reason not to expect a retest of the 25,125 high from Wednesday once more if the market can remain above 24,980 to retain a positive bias. Holding above 24,980 retains a bias for upside towards the 61.8% Fibonacci retracement at 25,367 and a retest of the June highs around 25,400.


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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.