This article was last updated on April 16, 2022
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Markets around the world continue to react to yesterday’s Fed news. In addition to the widely expected 0.25% rate hike, the central bank painted a positive picture of the US economy of strong job growth, and strong economic growth. Fed Chair Yellen indicated the US doesn’t need fiscal stimulus to reach the national employment target, clearly ignoring that some regions are doing a lot better than others.
The dot plot of Fed Funds forecasts has been front and centre once again with the forecasts looking toward 3 rate hikes for 2017 up from 2 in the September dot plot. This has ignited a major rally in the US Dollar which has gone screaming up 2% or more against other currencies. Gold is down2.8% overnight while Silver is down 5.4%. EURUSD has broken down under 1.0500, GBPUSD has been knocked back under $1.2500 while USDJPY has soared from 115 toward 118 and USDCAD had rallied from near $1.3100 toward $1.3300.
Between the US Dollar rally and US treasury yields blasting through 2.50%, the short term outlook for US corporate earnings has weakened considerably impacting stock prices. Although US index futures have stabilized overnight, US indices are still licking their wounds. The Dow for example was challenging 20,000 before the meeting and now is struggling to hold on to 19,800. The Hang Seng took a 1.7% hit overnight. The FTSE and Dax are trying to bounce back a bit rising 0.3% and 0.7% respectively.
There has been a ton of other news overnight. The Bank of England Swiss National Bank, Norges Bank and the Bank of Korea all held monetary policy steady as expected. Flash PMI reports for December have been well above expectations a positive sign for Japan and Europe with the US due later this morning.
Crude oil is one of the few markets that has been able to stand up to the strong dollar overnight shrugging off yesterday’s initial post meeting losses. WTI is up 0.2% today with Brent up 0.6%. Energy markets could be active again with natural gas storage due mid-morning and temperatures plunging in consuming regions.
Chart Signals
Chart Signals: USD breakout rally steamrolls currencies while stocks struggle
The massive USD rally has crushed other currencies sparking major breakdowns in gold, EUR, JPY, GBP and CAD. Stocks are not getting hit quite as hard but are still struggling with the US 30 falling away from the 20,000 level.
North American and European Indices
US 30 continues to show signs of topping having dropped back into the 19,820 to 19.870 area as it falls away from 20,000. RSI way overbought indicates high correction potential with next support near 19,755 then 19,595.
US SPX 500 is starting to roll over trading near 2,255 having run into resistance near 2,280. RSI falling back under 70 from overbought signals a correction starting with next potential support near 2,245 then 2,220 a 23% retracement of the recent rally.
US NDAQ 100 is still holding above 4,900 its recent breakout point but its advance toward 5,000 appears to have stalled short with resistance emerging near 4,955 and the index dropping back toward 4,920. Next downside support possible near 4,8975 in a pullback.
UK 100 has paused near 6,950 holding above 6,925 support and trading below 7,000 round number resistance within a broader 6,870 to 7,040 trading range. RSI confirms sideways momentum.
Germany 30 remains under accumulation bouncing up off a higher low near 10,200 toward a retest of 10.340 resistance before slipping back toward 11,300. RSI near overbought but uptrend intact with next resistance possible near 10,500 then a measured 10,640.
Commodities
Gold is getting crushed for a second straight day building on its breakdown below $1,150 by diving from $1,138 toward the $1,126 to $1,132 area with next potential support near $1,118 and $1,100. RSI extremely oversold but downward pressure still increasing.
Crude Oil WTI has staged a correction but the prise holding $50.00 and climbing back up into the $50.70 to $51.20 area indicates its underlying uptrend remains intact for now. Next support and resistance near $49.50 and $52.50 respectively.
FX
US Dollar Index has a major breakout underway today clearing 102.00 and rallying toward 103.20 with next potential resistance near a measured 104.20. RSI rising up off 50 confirms momentum turning upward once again.
USDJPY is screaming higher again today continuing its rocket blast up off 115.00 rallying from 117.00 toward the 118.00 to 118.70 area. RSI extremely overbought but so far traders don’t seem to care. Next resistance possible near the 120.00 round number with initial support near 117.60.
EURUSD is breaking down in a big way today, taking out $1.0500 to signal the start of a new downleg with RSI under 50 and falling confirming increasing downward momentum. The pair has dropped into the $1.0400 to $1.0440 area with next potential support near a measured $1.0320.
EURGBP is hanging around 0.8360 trading between 0.8330 and 0.8390. It’s near the middle of a 0.8260 to 0.8460 Fibonacci trading channel and holding above its 200-day average near 0.8305.
GBPUSD is breaking down today, taking out uptrend support near $1.2535 causing an ascending triangle to fail then the $1.2500 round number on its way toward $1.2460. Next support in the $1.2350 to $1.2400 area between a channel bottom and the 50-day average.
USDCAD has rallied up from its 200-day average near $1.3070 toward a test of its 50-day average near $1.3340 trading above $1.3300 a Fibonacci level. RSI back above 50 signals momentum turning upward with next resistance near $1.3390 then $1.3435.
CADUSD has been pounded back from its 200-day average near $0.7645 to test its 50-day average and a round number near $0.7500 with the pair trading near $0.7490. RSI slipping under 50 signals momentum turning downward with next support possible near $0.7445.
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