US Dollar rebounds on hawkish Fed comments

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This article was last updated on April 16, 2022

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Stock markets have started to turn back upward again. Rejecting a weak Asia Pacific session, European indices are climbing today with the FTSE up 0.6% and the Dax up 0.4%. US index futures are up 0.3% this morning. Commodities are soft with WTI crude oil and copper both down 0.5%.

The big story in trading today is an upturn in USD which has posted 0.5% to 1.0 gains against all the other majors following Fed comments. Overnight Philadelphia Fed President Harker, a voter this year, indicated ‎that a March rate hike remains possible if the US economy continues to perform well.

Speculation on a March rate hike could generate significant trading swings in the US Dollar and currency markets over the next month. A March increase would put the Fed on course for 4 hikes this year which is what the street has been expecting. A pass in March would suggest three hikes (the Fed party line) or fewer this year.

Philadelphia has historically‎ been one of the more hawkish regional banks. Thursday, the doves get a chance at rebuttal with Chicago’s Evans and St. Louis’s Bullard scheduled to speak. Fed speculation could keep currencies active through the week.

Today in North America, the focus is back on trade with trade balances for the US and Canada. The Trump Administration could use the data to make more points about policy and perhaps air more grievances or threats.

This morning S&P put out a report saying that Germany hasn’t deliberately devalued the Euro. This looks like a smoke screen to me as it completely misses the point. Just being in the Euro is a de facto competitive devaluation for Germany. A standalone Deutschmark would likely valued be a lot higher. The struggles of Greece, Italy, Spain and others to compete against Germany on currency has been widely known for years.

Canada building permits are also out this morning along with more Canadian PMI data and a number of earnings reports. ‎WestJet is out already this morning, beating the street by a wide margin.

Chart Signals

Chart Signals: Big tests for US indices, big reversals for currencies

It’s a big day for US indices with the US 30, US SPX 500 and US NDAQ 100 all retesting their recent all-time highs which could end in a series of breakouts or a series of double tops. Meanwhile, USD is on the rebound rallying up off 100.00 and sending other currencies sliding downward.

North American and European Indices

US 30 has rallied up from near 20,040 into the 20,100 to 20,120 zone, challenging 20,140 resistance. RSI holding above 50 indicates underlying accumulation continues. Next potential resistance on a breakout possible near 20,200 then a measured 20,280.

US SPX 500 is retesting 2,300 resistance today which could end in a double top or a breakout over 2,305. RSI still indicating upward momentum slowing. Next potential upside resistance near 2,345 with initial support near 2,282 then 2,252.

US NDAQ 100 is testing the top of its current 5,100 to 5,175 trading range. RSI is not confirming and a new high for the index could create a negative RSI divergence. On a breakout, next measured resistance possible near 5,250. A failure would create a double top with initial downside support possible near 5,125 then 5,085.

UK 100 is breaking out today, clearing 7,200 a round number and Fibonacci level to complete a rounded bottom and signal the start of a new upswing. RSI back above 50 and rising confirms momentum turning back upward. Next resistance possible near 7,265 then 7,300.

Germany 30 successfully retested 11,445 support holding above its 50-day average as well and has bounced back above 11,500 toward 11,575. It needs to retake 50 on the RSI and 11,700 on the index, however, to call off recent bearish signals and suggest this is more than just a trading bounce. 

Commodities

Gold is consolidating Monday’s gains with $1,229 a Fibonacci level becoming higher support, up from $1,220. Initial resistance appears near $1,235 then $1,250. A negative RSI divergence emerging suggests upward momentum may be slowing for now. 

Crude Oil WTI has stabilized in the $52.30 to $52.70 area after dropping back from near $53.80. It remains in an uptrend of higher lows forming an ascending triangle below $54.20 and holding above its 50-day average near $51.50.

FX

US Dollar Index is breaking out of a downtrend today, with the 100.009 round number becoming support and the index advancing on 100.500 with next potential resistance near 101.00 then 101.70. RSI also breaking out of a downtrend but needs to retake 50 to confirm an upturn. 

USDJPY found some support near 111.65 with more possible near 111.25 and has bounced back up toward 112.35 a Fibonacci level, retesting a recent breakdown point as new resistance. RSI still below 50 suggests this bounce as a common correction within a larger downtrend.

EURUSD is rolling over today, taking out $1.0700 and sliding toward $1.0675 with next potential support in the $1.0580 to $1.0600 area where a Fibonacci level and the 50-day average cluster together. RSI testing 50 where a breakdown would confirm a downturn in momentum.

EURGBP continues to struggle with resistance near 0.8660 trading in the 0.8620 to 0.8640 area. Next support possible at the 50-day average near 0.8535 then 0.8500 and 0.8460. On a breakout, upside resistance may appear near 0.8765.

GBPUSD is breaking down today, taking out its 50-day average near $1.2410, while RSI falling under 50 confirms a downswing underway with next potential support near $1.2275.

USDCAD is turning upward today, clearing $1.3140 its 200-day average, advancing on $1.3200 with next potential resistance near $1.3265 and $1.3300. RSI testing 50 where a breakout would confirm an upturn.

CADUSD has been knocked back from near $0.7655, retesting $0.7570 before finding support at a higher level. RSI breaking an uptrend suggests momentum turning back down, a break of 50 would confirm a downturn. Next potential support near $0.7550 then $0.7500 with initial resistance possible in the $0.7600 to $0.7610 area.

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