Dovish FOMC Minutes Scare The Dollar Bulls

This week was all about the FOMC minutes because there have been rumblings recently about the worrying global economic situation impacting on the Fed’s ability to raise interest rates. Sure enough, inflation has been noticeably absent from the US and as such with Europe staring down the barrel of deflation, Yellen and co would be more prudent to hold rates low for longer, thus killing the enthusiasm for USD longs for the time being. The US remains one of the better looking horses in the bubblegum factory as Bernanke would have put it, but nevertheless, perhaps too much rate hike bullishness was priced into the dollar and we are overdue a correction. The fact that similar concerns are held by the FOMC and discussed in the minutes makes the release really quite dovish and as such we should see quite a good dollar correction as a result.

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USD% Index

usd index wed 8 oct 14
A more dovish than hoped FOMC minutes has broken the dollar through support, although it is not yet a convincing break of the bullish channel or the 400 hour moving average, but with several key pairs displaying bullishness against the dollar such as the Australian dollar and the Euro (two of the most heavily sold currencies recently against the dollar) the move looks to be one of profit taking so far rather than outright dollar shorts entering. That does not mean we won’t get them, after all, the only real reason we were rallying so strongly with the dollar is an expectation of a rate hike, but it does mean that the next move is critical. If we see a failed dollar rally from here then we may well get speculative shorts entering. I am bearish USD%

USD% Index Resistance (EURUSD support): EURUSD 1.2729, 1.2721, 1.2683
USD% Index Support (EURUSD support): EURUSD 1.2800, 1.2812, 1.2850

EUR% Index

eur index wed 8 oct 14
Panic profit taking for the Euro has pushed it right into a key resistance zone and the reaction so far is less than encouraging. Clearly there were enough offers there to halt the rally, but also, enough offers had been pulled after the dovish minutes that the Euro remains still holding at resistance which is not a great reaction from the bears. I’m already long EURUSD from a few pips above 1.2500 and I am most definitely holding them for now and looking for a safe place to add to them. I am bullish EUR%

EUR% Index Resistance: EURUSD 1.2689, 1.2732, 1.2762
EUR% Index Support: EURUSD 1.2629, 1.2554, 1.2500

JPY% Index

jpy index wed 8 oct 14
Quite interesting developments for the Yen. Previously one of the most bullish currencies ahead of the minutes and in dire need of a retracement higher, but the stock market have piled into longs as usual thinking that the easy money gravy train will continue as rate hike expectations will now have been pushed further back along with inflation expectation dropping. This could see the yen remain bid due to risk aversion and dollar weakness, and it could could see the Yen offered due to the correlation to stocks and bonds. Most likely until we decide one way or the other it will simply be ugly confused chop all over again. I remain bullish JPY% but only if stock don’t rally too strongly

JPY% Index Resistance (USDJPY Support): USDJPY 107.63, 106.50
JPY% Index Support (USDJPY Resistance): USDJPY 108.68, 109.83, 110.10

GBP% Index

gbp index wed 8 oct 14
After struggling the whole time with upside after the rejection from strong support the pound has now finally popped outside of the bearish channel once again, although only just. The green 200 hour moving average has contained the upside which when you compare to the EUR% and USD% indexes testing the 400 hour moving averages shows exactly how much of a struggle this upside has been. With any luck, big business would have locked in a lot of pound at the 1.6000 rate recently and we can expect a flurry of new international business activity to see the second wave of the UK recovery come into effect. Certainly the IMF think the UK is doing something right so we should expect upside here also. I am bullish GBP%

GBP% Index Resistance: GBPUSD 1.6184, 1.6261, 1.6300
GBP% Index Support: GBPUSD 1.6061, 1.6030, 1.5973

AUD% Index

aud index wed 8 oct 14
The Aussie has been a really good canary in the mine recently. Everyone loves holding carry positive trades so the Aussie with it’s high and stable interest rate has started to look attractive now that perhaps there is less expected FX market volatility from a delayed US rate hike and a stable and still very favourable interest rate differential. The failure to break back inside the blue bearish channel saw me enter long at the support at 0.8750 although this trade will be under review at the 0.8900 level as will the broader FX market volatility. I am bullish AUD%

AUD% Index Resistance: AUDUSD 0.8900, 0.8926
AUD% Index Support: AUDUSD 0.8773, 0.8935

CHF% Index

chf index wed 8 oct 14
With EURCHF tracking sideways the Franc is a copy of the Euro chart, which means that we have rallied up to resistance and now wait to see what will happen next. Because we have previously been more bearish for the Franc this means that key resistance is higher, but with the nearby resistance at 0.9500 acting as the neck for a possible inverted head and shoulders then the important resistance could be mid channel. If the dollar rallies from here then the Franc looks a very favourable currency to pair that with however if the dollar sells then long EURUSD would be the better option. I am neutral / bullish CHF%

CHF% Index Resistance (USDCHF support): USDCHF 0.9500, 0.9550
CHF% Index Support (USDCHF resistance): USDCHF 0.9580, 0.9600

LittlefishFX Relative Currency Index Strength

All of the currency indexes used for this analysis are available as a NinjaTrader indicator from the link below. They are eight indexes, USD, EUR, JPY, GBP, AUD, CHF, CAD and NZD with each index made up of the remaining seven pairs, weighted in accordance with the distribution of global FX volume as measured by the Bank of International Settlements in their Triennial Survey.

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