USD sentiment flipped upside down ‘again’ after FED Minutes

Forex Daily Market Insight

What Happened Yesterday

The markets can be difficult at times and in particular when the dominant Central bank (The FED) keeps changing their mind about future monetary policy. One minute they are all for future rate hikes and then the next, out from behind the shadows (the Minutes), they reveal they are in fact on the sideline and worried about inflation.

The USD fell on Wednesday after the release of minutes from the Federal Reserve’s July meeting that showed the policymakers had grown increasingly worried about weak U.S. inflation readings, suggesting that the Fed may hold off on raising interest rates.

Fed policymakers spoke at length at the meeting about a recent streak of soft inflation readings, according to the minutes. Inflation has remained below the central bank’s 2 percent target for more than five years. 

The USD sank to session lows against all of the major currencies (with the exception being GBP) after the minutes were released. Earlier, the USD Index touched its highest level in nearly three weeks, boosted by expectations for another Fed interest rate rise in 2017 and cooling geopolitical fears.

Fed funds futures prices show traders see just a 42% chance of an interest rate increase by year-end and now see a marginal chance of a rate cut, according to CME Group’s FedWatch tool.

The USD had been under pressure prior to the minutes’ release as an exodus from and eventual disbanding of U.S. President Donald Trump’s manufacturing council and strategic policy forum pushed the dollar from its previous gains.

Trump announced he was shuttering the manufacturing council after the chief executives of 3M and Campbell Soup Co announced they would leave it in protest over his comments about a violent weekend rally and death of one person in Charlottesville, Virginia. A second strategic and advisory group was dismantled as well.

That’s another blow to an already dysfunctional and disorganized Trump administration. I bet “the Donald” can’t wait to get back to his Beauty pageants and Apprentice Tv show.

Today’s Fundamental Drivers

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Today is show time with the main releases for the week. We’ve got top tier data in Asia, Europe and North America. With the markets somewhat out of ‘whack’ from the USD seesaw price action it’s definitely time to reduce your trade size.

Technical Set Up – What’s Happening with the Majors

All of the majors felt the impact of the USD fall after the release of the FED Minutes. Sterling was the exception as Brexit concerns once again rise to the surface.

EURUSD

Back trading mid-range…. if you’d been away for a week you’d think very little has happened!

GBPUSD

Strong Employment data brought it back from the brink of collapse but Brexit concerns are now starting to weigh heavily.

USDCHF

It’s finally following USD sentiment along with the other majors. It could be back to normal trading for the Swissie.

USDJPY

It felt the full force of the USD sell off and the short term uptrend it was in is now in danger of becoming a downtrend!

AUDUSD

The market was short for good reason but the FED minutes were enough to take all the short positions out above 0.7900.

NZDUSD

Massive short ‘clean out’ to the topside. It’s now in no-mans land.

USDCAD

Finally a solid move in line with interest rate expectations! But be careful as Oil has fallen further so this dip may be short lived!

Today’s Focus – Major Currencies in Play

You need to follow the economic data releases & best technical set ups to work out where the majority of action and interest will be.

EURUSD

Technical Set Up: Support 1.1685 & Resistance 1.1817

Fundamental Driver: Eurozone CPI

Potential Strategy: The next move will come down to the EZ CPI. The best side of the market is the topside so look for strong numbers.

GBPUSD

Technical Set Up: Support 1.2840 & Resistance 1.3010

Fundamental Driver: UK Retail Sales

Potential Strategy: Strong numbers should see it break back above 1.2900 but beware negative Brexit news.

AUDUSD

Technical Set Up: Resistance at 0.7950

Fundamental Driver: Aust Employment

Potential Strategy: Short term bias is up so look for strong numbers.

Next Best Trade Update

We had a really nice set up on the AUDUSD but were run over by the unexpected comments in the FED minutes. This is a great example of why you have a trade plan and why you must stick to it because the unexpected can pop up and take you out, regardless of the set up.

With all the “to and fro” price action of the majors it’s time to wait for clearer market direction and/or reduce your trade size.

Our long term orders are still in play. Check the Next Best Trade list for all details.

Summary

Great trading conditions occur when we have very clear direction (sentiment) on the USD. At the moment we are seeing USD sentiment flip on its head every other day and that’s making trade selection somewhat difficult.

Check out the last 2-3 weeks of the USD Index. It tells the story of the market. If you’re having inconsistent trading results, this is why. It’s a blood bath.

The good set ups are there on the majors but we have to factor in a ‘loose’ USD sentiment and that’s why we will be reducing our trade size particularly during the North American session.

Another thing to consider is taking some cash off the table a little earlier than usual. We are getting the 30-40 point trades but then they flip in the US session. So use that knowledge to your advantage and adjust your trade plan slightly to accommodate the irregular price action of the USD. Until the USD has clearer sentiment!

Tune up your charts and get ready to trade!

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