FOMC: hawks fail to deter Dollar bears

The Federal Reserve temporarily elevated global sentiment during trading on Wednesday following the slightly hawkish FOMC statement that renewed optimism over the possibility of a June interest rate hike. Although rates were left unchanged at the April meeting, the statement’s omission of global economic and financial developments exposing the US to downside risks simply redirected attention back towards the state of the US economy. While investors initially cheered the Fed’s refocus on domestic data as a means of raising US rates, it must be remembered that data from the States has followed a tepid path while ongoing external developments continue to leave the nation vulnerable. Despite the Fed’s attempt to bolster confidence amid ongoing global instabilities, sentiment remains bearish towards the Dollar and this can be seen in the Dollar Index. As of now the Fed futures illustrate a 15% probability of a rate hike in June but with the horrible mix of global developments coupled with lackluster data from the States, even a 15% chance seems quite optimistic.

Refocusing back on the Dollar Index, this index is bearish and prices smashed into the 94.00 level as discussed on Wednesday. There have been consistently lower lows and lower highs, while the MACD also trades to the downside. Previous support at 94.00 could transform into a dynamic resistance which could invite a further decline lower towards 93.00.

BoJ shocks markets

The Bank of Japan rattled the global markets in the early hours of Thursday following the unexpected decision against implementing further stimulus measures despite recent domestic data signaling that the economy is under immense pressure. Although talks of diminishing returns of monetary policy have been directed towards the BoJ, this decision to do nothing could trigger an unprecedented appreciation in the Yen that ultimately may revive deflation. Japan is an economy which continues to be punished by the incessant declines in commodity prices while faltering levels of inflation have left the central bank backed into a corner. Sentiment is very bearish towards the Japanese economy and expectations are mounting that another technical recession could be around the corner. With speculations growing that the BoJ could be running out of ammunition it will be very interesting to see what the central bank’s next major steps will be to revive economic growth and inflation.

The USDJPY plummeted and may continue to plummet as an appreciating Yen drags the pair to levels not seen since mid-2014. From a technical standpoint the USDJPY is heavily bearish as prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at 109.00 could transform into a dynamic resistance which could encourage sellers to send prices lower towards 105.00.

Gold bulls return

Gold bulls have returned with force sending prices smashing through the $1250 resistance as a potent mixture of Dollar weakness and risk aversion provided a foundation for bullish investors to install another round of buying. This metal has always been bullish and with concerns over central bank caution and overall anxiety in the air renewing precious metals allure, another incline towards $1270 could be a reality. From a technical standpoint, prices are trading above the daily 20 SMA while the MAD has crossed to the upside. Previous resistance at $1250 could become a dynamic support for another move up towards $1270. Ongoing Dollar weakness may be the main driving force that ensures prices remain buoyed with bullish targets reached.

Commodity spotlight – WTI Oil

WTI Crude surged with vitality during trading on Wednesday with prices flying towards fresh 2016 highs above $45, as expectations heightened for a potential drop in U.S stockpiles. Additional news of Saudi Arabia’s reform plans to steer away from oil dependency, coupled with a vulnerable US Dollar, offered a foundation for optimistic bullish investors to send WTI crude to gravity-defying levels. The rally was quelled when data from the government displayed US crude stocks climbed by 2 million barrels, which simply renewed concerns over the unrelenting oversupply. From a technical standpoint, WTI bulls have made their mark and this commodity has turned unquestionably bullish on the daily timeframe. There have been consistently higher highs and higher lows, while the MACD trades to the upside. Previous resistance at $44 could transform into a dynamic support that could invite an incline towards $46. While these short term gains are impressive, the fundamentals point to the downside and this paradigm raises questions on how much further the bulls can go against this overwhelming tide.

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