The Fed is surely confident about the US economy
Momentum is weak for the euro bulls
Pullback in the equity market may encourage investors to park their funds in safe-haven
The European markets and US futures are under the influence of the change in the monetary policy stance by the Fed. Having said that, the yield on the 10-year treasury bonds have retraced from it’s high.
Forex
The Fed is surely confident about the economy, does not matter if the stock market feels that way especially if we see the traders reaction to the FOMC minutes. The word “further” in the FOMC minutes added fuel to the fire. To a greater extent , the minutes gave an acute signal that the Fed is open to debate that there could be 4 interest rate hikes this year. The markets are pricing this reaction now and this has pushed the dollar index above the 90 mark. The FOMC meeting minutes are suggesting an upward revision in US economic projections provide a further green light for traders to long the dollar.
The officials were more positive in their economic outlook and optimistic that they can achieve their inflation target. Positive US economic data, including a 0.5% monthly gain in CPI and a 2.9% increase in average hourly wages for January, anchored investors’ expectations for aggressive interest rate hikes this year. Increased Fed hawkishness is perhaps enough to say goodbye to the dollar sell-off fuelled by speculation that the Trump Administration would pursue a weak-dollar strategy.
The German IFO provided further hints about the momentum in the German economy. The momentum is weak for the euro bulls, traders are going to focus on the ECB’s minutes and their debate on capping asset purchase. This would be in the limelight. The doves have a little or no excuse to delay the talks around the change in the forward guidance stance. The bank may not be revealing what is going on behind the closed doors, but one can guess that the ECB must have had a debate about changing the forward guidance
The Euro plummets down to 1.2265 against the greenback, but this is more to do with a firmer USD rather than changing Euro fundamentals, so we could see a slight pullback may continue as the dollar remains firm. Elsewhere, despite English policymakers striking a hawkish tone on inflation, the Sterling bulls are going to keep the upcoming limelight on the second estimate GDP q/q reading. The number is improving as we have come a long way from 0.2% which was the reading in May last year. Given that the EU has said that the timeline for the transition period for the UK leaving the EU is on track, boosts some confidence amidst traders. However, the stronger dollar and poor GBP employment figures, causing the Cable to retest the 1.38 region.
Gold
The Fed is hawkish and the dollar index has crossed above the 90 mark, these are enough reasons for the bears to draw their boundary. The weakness in the gold price is prominent, however, there is no major panic especially when the metal is still holding on to gains if you look at its performance from YTD perspective. A soaring dollar is the main reason for investors to scale back on Gold, however, the pullback in the equity market may encourage investors to park their funds in safe-haven- gold. Imminent geopolitical tensions remain a major concern for Gold shorts, so the dip may provide an ideal buying opportunity for traders wanting to get a piece of the yellow metal.
Oil
Oil traders had a little to no chance to react to the dropping crude oil inventories, a similar message which was echoed in the API date too. However, pressure from Saudi Arabia to push Oil prices higher ahead of the Aramco IPO may give an indication that there is still upside potential for the commodity.The 50 day moving average is serving an interesting purpose because the last time the price crossed this was back in September 2017 and since then we had a massive rally. I think the support of 58, which is also where the 100 day moving average is an important point and there is a possibility that we could touch mark.
