Fed Chair Jeremy Powell called off the 0.75% hikes some had expected. This helped the other markets to rally against the dollar quite sharply. Stocks, gold and the major dollar counterparts posted substantial intraday gains yesterday after the FOMC press conference. This was exactly the kind of price action I have warned about over the last few days. The markets had priced in quite a bit of the future rate hikes and had become too one-sided. Therefore, as soon as there were signs of less Hawkishness the markets rallied against the dollar. Today’s main risk event is the BOE rate decision. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
In today’s report trade ideas and commentary on:
- EURCHF – Moved to my Target 1
- USDCAD – Moved to my Target 2
- DJ – Rallied to both T1 and T2
- GBPUSD – Possibly reversing the downtrend
- EURUSD – Consolidating and possibly reversing
EURCHF became weak after the FOMC yesterday and hit my first target at 1.0324. My idea was to look for short trade signals below the trigger level. After reaching the target level the market rallied back to yesterday’s high.
USDCAD hit also the second target yesterday as oil rallied and USD dropped on the news that the Fed hikes only 0.50%. I warned about this type of buy the rumours sell the news snap back in the USD.
GBPUSD traded above the sideways range (1.2411 – 1.2614) after the FOMC yesterday but then fell back in. After hitting sloping trendline support the market started to feel like it could present a buy opportunity. I said earlier today in the TIOmarkets Telegram group (here) that I’m looking for long trades on a decisive break above a minor resistance level at 1.2544 in GBPUSD. My T1 is at 1.2624 and my T2 at 1.2707. Alternative scenario: If the breakout fails and the market fails stay above it look for a move to 1.2505 or so.
DJ rallied through both my T1 and T2 levels. I said in yesterday’s report (here) that the big picture supported a bullish view as VIX indicated downside hedges were exited and the market was deeply oversold). This is why my view was that unless Fed turns out to be even more hawkish than it has been in its recent guidance and if price action confirmed (my bullish view) I would look for buy signals. The target levels I gave the day before (here) were hit and the market ended up trading even higher. Note how the channel low gave an entry opportunity for those that decided to engage this market on the long side before the breakout.
EURUSD has been strengthening since I mentioned on April 28th (here) that the downside in this market would probably be limited. So far EURUSD has not moved below the April 28th low and has rallied approximately 1.6% from the low recorded on that day. As the pair is consolidating there is a possibility that we’ll see a bigger pullback in EURUSD but the jury’s still out on this.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March nonfarm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The annual headline inflation reading for March came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- USOIL – OPEC-JMMC Meetings
- GBP – BOE Monetary Policy Report
- GBP – MPC Official Bank Rate Votes
- GBP – Monetary Policy Summary
- GBP – Official Bank Rate
- USD – Unemployment Claims
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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