Wait-and-see Fed continues

Overnight Headlines

*USD eases for a third straight day after hawkish Fed expectations are dashed

*US equities ended a mixed bag, Nasdaq in the green but broader S&P500 lower

*Fed sees some progress but still some way to be substantial enough

USD has fallen this morning, heading for four straight days of losses after a slightly less hawkish FOMC meeting than the markets wanted and had priced in. DXY has broken down through near-term support and is now looking at the July lows around 92. Similarly, EUR is eyeing up July highs around 1.1880 while GBP’s impressive gains are now pushing through the 100-day SMA at 1.3926. CAD has also broken near-term support and is touching the lower part of the bull channel.

US equities got a mild lift from the Fed statement but closed broadly flat with tech outperforming. Facebook beat earnings expectations but warned of a significant growth slowdown. China took steps to calm recent investor fears and this has pushed the offshore index in Hong Kong up more than 3%.

Market Thoughts – Progress but a way to go…

It seems the Fed may have given the bears more succour than the bulls at its meeting overnight. The muted dollar reaction suggests their statement signalled that a slightly more hawkish message was largely priced in. Selling pressure has continued today which points to the markets believing there is still some way to go on taper issues, before any rate hike talk. “We’re not there, and we see ourselves as having some ground to cover” best sums things up.

Inflation is still seen as transitory and will remain elevated in the coming months before moderating. Powell added that inflation could turn out to be higher and more persistent than expected. Jackson Hole in late August is being billed as the key date by bulls for more taper detail, but might that be too early with only one NFP jobs report to analyse over that period.

Chart of the Day – Gold eyeing 200-day SMA

With the Fed disappointing the hawks and the dollar being offered, gold is getting a boost above $1,800 and the 100-day SMA. Solid support is now at $1,789 and bugs look to be breaking out of the recent range. With really bond yields still deeply negative and some optimism over the infrastructure deal, the key target above is the 200-day SMA at $1,822 with the July high also at $1,832. Any new Covid concerns will help the bulls cause with summer stock market volatility also a potential boon.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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