Market Overview
The minutes from the latest FOMC meeting showed a split committee with regard to the prospect of further rate hikes in the coming months and this has weakened the dollar. Some suggested caution and the increasing focus on the international economy in backing away from immediate hikes, whilst some suggested that April was still on the table. This all means that the Fed is not ready to hike at the next meeting at the end of the month and also makes a June hike also less likely. This move has weakened the dollar (the trade weighted US dollar has now fallen to its lowest since October) and helped an improvement in risk sentiment (with the usual short-sightedness of bad news being good for equities). Wall Street closed around a percent higher on the S&P 500, retracing the previous losses. However, Asian markets were far more cautious and were only mixed in performance with the Nikkei up 0.2% (although clearly held back by the continuing strength of the yen). European markets are mildly higher in the early moves.
The forex markets show the dollar continues to be sold against all of the major currencies, although the yen is the best performer (something which should act as a warning and is reflective of a the concerns over a low growth environment. Gold is also back higher again as a roller coaster of a few days continues. Carrying on from yesterday’s sharp gains, the oil price is another 1% higher.
Traders have got a relatively quiet morning of economic data ahead, whilst the focus will switch to the ECB as the minutes from the latest meeting of the Governing Council are released at 1230BST. Attention will be given to the decision making process behind the massive easing program and hints for further measures in the months ahead. The US jobless claims are at 1330BST which are expected to improve slightly to 271,000 (from 276,000 last week). There is also a speech from Fed Chair Janet Yellen tonight at 1030BST, again with focus on potential hints on monetary policy.
Chart of the Day – AUD/USD
Is the Aussie beginning to show some corrective signals? The rally which hit the high at $0.7720 last week has coincided with a deterioration in the momentum indicators which suggests that there is now a series of bearish divergences on the RSI and Stochastics, whilst the MACD lines have also crossed lower. The support at $0.7475 has now become is now key for the outlook. Yesterday’s session looked to unwind some of the losses from Monday and Tuesday to leave support at $0.7510 but with the deterioration in momentum the rallies could now be seen as a chance to sell. That makes the reaction to this move today extremely interesting. In the past few weeks, the price has moved away from its uptrend that has been in place since the January low and there could be a building of a correction back towards the uptrend support in the near to medium term. The hourly chart shows an near term pivot band at $0.7640is the basis of resistance and the unwinding of the technical indicators from a bearish configuration could be another indicator of a sell into strength. Although this may be a touch early to talk about corrections (bearish divergences on momentum can often take a while to really take hold on the price), but ultimately I expect a retest of $0.7510 and subsequent pressure on $0.7475. There is further resistance at $0.7685.
