Dollar Hollar: USD at Inflection Point Into FOMC
According to analysts at RBS, given the substantial shift from the Federal Reserve at the March 16th FOMC meeting, and the subsequent reinforcement of that shift at Janet Yellen’s March 29th speech to the New York Economic Club, we feel today’s FOMC statement is too soon for an about face in which the Fed signals a preference for a rate hike at the June meeting. We believe that the Fed could recognize that international risks have diminished, but a hawkish shift tomorrow risks losing all the gains achieved since the March meeting (and indeed since the January-February market turbulence): a weaker dollar, an alleviation of pressure for a yuan devaluation, higher equity markets, tighter credit spreads, contained Treasury yields, and generally looser financial conditions. In addition, the optics of the data this week makes a hawkish shift difficult, where GDP will likely show near zero growth for Q1 and the core PCE Deflator is expected to slip back to +1.5% y/y from +1.7% y/y.
Technical & Trading Takeaways
The chart below and analysis below is take from my March 16th report you will see from the last chart that price has played out near perfectly to the market map.
From a technical and trading perspective the price action continues to develop in a complex consolidation pattern which has been frustrating bulls and bears since this time last year. We are still rotating around the apex of the pattern, against 98.50 the horizontal blue line on the chart, I would anticipate further exploration of the downside retesting 95.28 en-route to an ideal 94.00 symmetry swing objective. A bounce from the 94.00 level should meet resistance on a retest of the apex from below between 96.00/97.00 I will monitor intraday reversal patterns should this probable price path play out, setting shorts to target a full retest of the consolidation support at 92.50. A move through 98.50 against the current swing lows at 96.00 will negate this set up and I will reassess and update in the next report.
As per my analysis above I have initiated short exposure on the retest of the apex of the consolidation at 96.00 will hold this position for a move down to test range lows with first objective at 94.00. Where I will reassess price action.
Price action has continued to develop broadly inline with my thesis we have been rotating around the 94.00 support level fro most of April. This consolidation while prolonged was not unexpected as bulls and bears battle at this key inflection point. I retain my short exposure from 96.00 with stops at entry so my position is risk free. I will hold my shorts now to target 92.50 as per the chart below. While we hold the 95.00 level as resistance there is some further symmetry developing, with an internal AB=CD of the larger C=D leg all positing to the 92.50 objective i will exit shorts here and reassess and provide a trading strategy update post trade exit.
Trading Update: Target achieved +350pips
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