Forexlive Americas FX news wrap: Fed officials happy to be on hold for the time being

Author: Greg Michalowski | Category: News

Forex news for NY trading on January 9, 2019

In other markets near the close:

  • Spot gold rose $8.08 or 0.63% at $1293.31
  • WTI crude oil futures surged $2.40 or 4.82% to $52.18.  The high extended to $52.58.  Saudi Arabia said that they would not rule out further OPEC+ action at some time.   
  • Bitcoin is trading up $17.10 at $4016.95.
In the US and European equity markets today, indices were higher (the exception being Spain's Ibex). The European indices were led by the Italian FTSE MIB which rose by 0.94%. In the US, the NASDAQ index rose by 0.87%. It was the 4th straight day of gains for the US indices. 

US yields today saw the shorter end yields falling as Fed officials and the FOMC meeting minutes showed that the Fed is on hold for the time being at least. 

With the US in the 19th day of the government shutdown (started on December 22), and economic data postponed, the markets today were reliant on a slew of Fed speakers and reports for the US/China trade talks.  

With regard to the trade talks, the detail are speculative, but they did go into a 3rd day (was supposed to be 2). That is positive on the surface, but one must remember this isn't just about China buying some barges of soybeans.  Later in the day there was a headline that "US and China 'far apart' on Chinese subsidies to state companies", which is a reminder of this fact.  Nevertheless, the market trades often in the present, and if there is enough to delay tariffs past the 90 day deadline, it should be good for stocks at least.  Major indices in the US closed higher for the 4th straight day.  European and Asian stocks were also higher. 

What wasn't higher was the USD.  Looking at the major currencies today, the USD was the weakest (see charts below). 

The catalyst for the dollars run lower was Fed speak.  Fed's Bullard, Bostic, Evans and Rosengren all agreed that delaying hikes was warranted.  Now there were some varying degrees of dovishness - Evans still expects 3 hikes in 2019 which is above the 2 hikes that the dot plot shows, and also sees the funds rate heading to 3% to 3.25%.  However, even Evans commented that the "Fed has capacity to wait and take stock of incoming data". 

Later the FOMC meeting minutes were released and the headline that "Many officials felt Fed could be patient on further hikes"  and that the Fed judged "a relatively limited amount of additional tightening would likely be appropriate", was supportive of a lower dollar.  

As such the EURUSD, GBPUSD, USDJPY, USDCHF, and NZDUSD are closing near the USD lows for the day in each of those pairs (see chart below). The dollar is certainly not the king of late.

In other news today, the BOC kept rates unchanged as per expectations and put on hold thoughts of raising rates soon (but kept the door open for hikes down the road).  It is a wait and see game with regard to monetary policy.  

Around the time of the decision, the USD was getting hit on Fed speak. That helped to take the pair down to a low of 1.3179. That got within about 14 pips of the 100 day MA.   Buyers entered and pushed the price up to 1.32227. The price settled at 1.3210 area. Still lower on the day. 

Other key technical levels to be aware of into the new day:
  •  The AUDUSD moved higher and tested its 100 day MA at 0.7180. A move above that MA would shift more of the bias higher. So far sellers are trying to keep control
  • The NZDUSD also moved higher and for it, tested its 200 day MA at 0.6794, only to back off a bit into the close. Like the AUDUSD, a move above would be more bullish. Stay below and seller are winning
  • The GBPUSD reached to the 1.2796 to 1.2813 swing area and stalled twice at 1.2803. On is the downside, the 100 hour MA was tested near the lows today.  If it goes below, sellers will start to take more control. 
  • The EURUSD broke out of a range between 1.1266 and 1.1500 that has confined the range since the end of October. That break higher really got going on the break - with momentum - of the 100 day MA at 1.1480 level.  The high reached up toward the 1.1550 level which was a swing high going back to October 22. Breaking out of the 3-4 month range is significant.  Risk for longs is a move back below the 1.1500 level and back into the range.  

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