The drop in equities is sparking a further bid in the dollar now, with EUR/USD down 0.4% to 1.0640 and AUD/USD down 0.7% to 0.6815 as we get into European morning trade. As much as central banks are in focus - which tends to make bond markets the center of attention, the prevailing sentiment in stocks is hard to ignore. I mentioned yesterday that:
"The technical considerations above (S&P 500) will play into how risk sentiment will push forward in the aftermath of the events this week. As such, it may not necessarily be a straightforward reaction in which we equate any dollar selling and bond market rally to a potential risk rally. I fear that it might be a case of equities having to vindicate the moves elsewhere and if they don't, that might spark some retracement in the dollar and bond market moves."
This is the technical predicament that I was alluding to and it is very much still in play, with the rejection of the key trendline resistance (white line) proving to be vital in pinning price action in between the 100 and 200-day moving averages.
That is arguably a big reason why stocks haven't quite followed up on the retracement of the Fed moves yesterday and that could lend itself to the dollar finding a decent footing, as risk sentiment begins to tilt towards being more defensive.
Of course, we are still caught in the middle of digesting the post-Fed narrative and there might be more to it at the end of the day. But for now, this is definitely something to keep in consideration.
