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FOMC minutes send Dollar skyrocketing against other majors, but what really changed to cause this rally?
MORNING BRIEF
Dollar gained back a significant part of the ground it had lost over recent sessions yesterday after the release of the FOMC minutes. The voting members expressed their optimism over the recovery in the domestic economy and discussed possible dates for tapering in the “coming months”. Moreover, they discussed various scenarios under which they could start cutting back their asset purchases program and all these were received with great enthusiasm from Dollar traders sending the currency significantly higher against all of its counterparts. The US currency had suffered losses recently after the current front-runner to succeed Ben Bernanke, Janet Yellen, had expresses her views favoring a later date for tapering but yesterday’s minutes spurred a strong rally in the Dollar versus all the other majors. Euro fell at 1.3415 while the Pound gave back significantly less ground retreating to 1.6070. What we like to comment however is the fact that this rally seems more of a relief rally to our eyes rather than a turning point in Dollar’s outlook. The reason is simple: everything that the FOMC minutes reveled was already known in the market. Earlier dates for tapering have already been discussed and the strong recovery during recent months has already been noted from the data that came in after the US shutdown, which by the way had only a minor effect to the US economy. Our point is that nothing new came out of the release to justify such a strong Dollar rally so we assess that traders came back in force after having been scared away from Yellen’s comments recently. This means that Dollar’s outlook remains unchanged and we’d like to see more data post-shutdown to assess what’s next. For the day ahead, we’ll have the chance to listen to ECB President’s Mario Draghi remarks early in the morning and later on the Initial Jobless Claims report is scheduled for release. Lastly, the Euro-zone Consumer Confidence is also scheduled for today and we’d like to see how consumers in the European region have received the recent uptrend in Euro’s price.
ECB President Draghi and Jobless Claims on the docket today
As we mentioned above, the day starts with a speech from ECB President Mario Draghi and we are very interested to see what he has to say about the recent swings in Euro’s price. The European currency has reached significant highs recently only to retreat lower after the ECB rate cut but is now on its way higher again after the Yellen-caused Dollar weakness. Later in the day, another important piece of data on the US economy will be released as the Initial Jobless Claims are coming in at 13.30. The labor market in the US is recovering at an encouraging pace and we’re keen to see whether this stands true. Finally, Consumer Confidence for the Euro-zone is also coming in later in the day but we believe that the Euro will mostly be influenced by Draghi’s earlier remarks.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
10.00 |
EUR |
ECB President Draghi Speaks |
Medium |
||
|
13.30 |
USD |
Initial Jobless Claims |
Medium |
335K |
339K |
|
13.30 |
USD |
Producer Price Index |
Medium |
0.3% |
0.3% |
|
15.00 |
EUR |
Euro-zone Consumer Confidence |
Medium |
-14.0 |
-14.5 |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
Euro’s recent uptrend came to stop yesterday after the FOMC minutes spurred a relief rally towards the US Dollar. At this point we’d like to see whether the European currency rebounds higher on a retracement and the key level to watch is the 1.3450. We believe that little have changed on the fundamental side of things after yesterday’s release and we’d like to see more to justify a turn in Euro’s outlook. ECB President’s Draghi speech could offer more insight on the currency’s outlook thus we’d like to remain on the sidelines for the day ahead in order to better assess what’s next for the currency prior to committing on another trade.
GBP/USD
The Pound yesterday printed a new high and triggered our long entry at the 1.6150 level but was later influenced by the pro-Dollar rally and retreated lower to settle around the 1.6080 area. The Pound showed amazing resilience against the Dollar as the relief rally was significantly smaller on the Cable and this could mean that the 1.6060 support will hold strong. We’re committed to our trade at this moment, our stops remain just below the 1.6050 support level and we believe that the recent uptrend in the Pound has enough reasons to continue higher.
FTSE 100
The FTSE 100 was on a wild ride yesterday, our short entry was triggered just below the 6,670 points mark but soon after our stops were threatened. Luckily the index only printed 6,712 which is only a couple of points lower than our stop placed above the 6,710 resistance and our first target at the 6,650 points was hit late in the afternoon. Now, our stops have been moved to the breakeven price as soon as the first target was hit and we are optimistic for even more gains when the UK markets open. Our second target stands at the 6,620 points and a bearish market opening will bring us closer to this mark.
Gold
Gold was crushed yesterday after the FOMC minutes release and dropped like a stone only to stop above the $1,240 level. Our short entry below the $1,269 area was triggered and both of our targets were hit within the day for a perfectly executed trade. Now, Gold seems to be on an overextended downtrend once more and the yellow metal is quickly approaching the important $1,200 support area. The outlook at this point is negative and although a retracement higher could be in play today we believe that more losses for the commodity’s price are expected down the road.
All charts have been created using FXCM’s Trading Station platform.
This is the free, time-delayed version of NewsletterPro, a subscription-based product.
If you would like to receive it before 7:30am, please subscribe by clicking here.
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