USD
At the start of the year, markets priced in two interest rate hikes from the Federal Reserve. Then that number dropped down to one after dovish remarks from Fed Chair Jerome Powell which led investors to lower their expectations. Now with another surprise we have an even more dovish stance that was not necessarily priced in by investors. The dollar drops like a rock.
The Federal Reserve has announced that they will not be raising interest rates and that they do not plan to in the foreseeable future. Chair Powell kept repeating that the economy is in good shape. The dovish surprise was great; besides the downgrade of growth, inflation, and interest rates we now know that the quantitative tightening (QT) program will be decreased to $35 billion per month from previous $50 billion. QT is when the Federal Reserve sells assets it has on its balance sheets. All the stocks and bonds it bought over the quantitative easing program (QE) it has been selling since 2018. Which could have caused the fall in the stock market. Besides all this, the next move from the Fed may be a rate cut!
The graph below shows us the equally weighted dollar average of the G7 currencies. It’s the price of the dollar in relation to all the other main currencies. We have broken through the trendline going up and retested it. In classical technical analysis the next move is a strong impulse down. Fundamental factors confirm this move. What do the other currencies tell us?
Equally weighted dollar average of the G7 currencies
S&P 500
The equity market has also taken to correcting its pricing. Stocks grew on the news of rates not rising in the near future them quickly fell at the end of the day. This is the same move we saw after the first time the Fed led on that they will not be raising rates like the said they would. Now stocks are poised to retake September highs with the help of the Fed.
The opposite scenario is also probable. The SPY showed us signs of topping out last week. Now we see more evidence in a bearish shooting star formation and a negative RSI divergence. If we close below 281, we could potentially see another slide to the downside.
SPY S&P 500 ETF Daily graph
USDJPY
Safe haven assets are on the rise. In the time to come we believe that safe have assets will continue their climb. US president Donald Trump recently stated that tariffs on China will stay until they comply with the “deal”. The “deal” is very difficult to comply with as it includes buying additional US goods and enforcing international copyright laws. This whole situation adds to the risk-off scenario and instability of world economic growth.
Dovish guidance from the world central banks add to this category of investment opportunities. The Swiss National Bank, Bank of England, and Federal Reserve all recently made comments that they will take a dovish approach to monetary policy and not raise interest rates in the near future. The SNB already is keeping interest rates at -0.25%. The lowest current interest rate in the world. Collectively the monetary authorities are indicating to us that we are in the late end of the business cycle.
The Australian and New Zealand Dollars have managed to standout in the currency markets. This is due to supportive economic data from their countries. Australia is enjoying an 8 year low in their jobless rate. The NZD actually picked up due to growth in their GDP. We would like to point out that the risk aversion currently present in the market could cause the Japanese Yen to grow while other currencies sink.
USDJPY daily graph
USDGBP
The BoE is in Brexit fog. Prime minister Theresa May is working hard to push her deal through with the Members of Parliament. She says that they will not be ready to leave on the 29th of March but instead she is pushing the deadline to the 30th of June. Also, she has made it very clear that she will not hold another referendum. Bank of England interest rate will remain flat until the Brexit fog is cleared. Keep an eye out for their press conference as this will give you a good indication of how they see the pound. Currently we do not see a trading opportunity in this currency pair.
GBPUSD daily graph
Crude oil
Crude oil inventories have the sharpest decline in 8 months. With a forecast of 0.309M barrels of Crude Oil Inventories the actual figure was -9.589. On top of the dollar weakness this has caused WTI oil futures to jump above 60$.
Oil is trading above the 200EMA which will act as a strong level of support. Fundamental news that are affecting the price of oil is the fact that Russia and OPEC are doing so much to decrease output throughout the world. According to OPEC+ member countries are going to reduce the output of oil by 1.2 million barrels in 2019. Also, the cartel cancelled its meeting in April, meaning that they will keep these production cuts all through the slow season of summer up until June, when they will decide future action. We believe that OPEC and its allies will keep this policy all the way through the year.
A possible entry point for long position presents itself if price will dip down to the level of the 200EMA at 58.73. Entries can be made as low as 58.00 with stop losses located below 57.25.
WTI Crude oil daily graph
Analytical Department Olymp Trade.
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