Wednesday, 27 April 2016

Dollar bears rev as FOMC looms

Written by Lukman Otunuga, Research Analyst at FXTM

The bearish sentiment towards the Dollar descended to new depths during trading on Tuesday

following a slew of tepid data from the States which rekindled concerns over the health of the

world’s largest economy. Although durable goods orders were positive, it still missed

expectations at 0.8% while consumer confidence followed a negative path consequently offering

enough encouragement for the bears to drag the Dollar Index to the lows of 94.21. With an

awful mixture of both domestic and global events ensuring the Dollar remains depressed, Dollar

weakness continues to be the central theme that reverberates through the currency markets.

The main focus and event risk for Wednesday will be the release of the FOMC meeting minutes

in which markets broadly expect US rates to be left unchanged at 0.5%. While most may

speculate that the FOMC could be a non-event due to the lack of a press conference, I feel this

may pressure investors to closely examine the statement for clues on future rate hikes or any

change in language. Since the historic rate hike decision in December, the economic landscape

has morphed for the worst with incessant declines in oil prices and ongoing concerns over

slowing global growth sabotaging the Fed’s efforts to take action. These factors have repeatedly

caused the central bank to postpone rate hikes and with nothing changing fundamentally, a

procrastinating Fed could be the ongoing theme for 2016.

Refocusing back on the Dollar Index, this Index is technically bearish on the daily timeframe as

there have been consistently lower lows and lower highs. Prices are trading below the daily 20

SMA and the MACD has also crossed to the downside. Sellers could be encouraged to send the

Dollar Index towards 94.00 as long as bears can keep prices below 95.00.

Stock markets volatile

Global equity markets displayed haphazard characteristics during trading on Tuesday as the

sharp movements in oil prices that bolstered risk appetite encouraged investors to offload and

reload positions in various instruments. Despite the abrupt rise in oil prices keeping European

and American markets buoyed, this relief rally could offer an opportunity for bears to send prices

lower especially if the central bank meetings this week renew a wave of jitters across the board.

Currently Asian stocks are pressured with the Shanghai Composite trading -0.30%, further

losses in Asia could be expected if an appreciating Yen and rapidly diminishing expectations of

further intervention by the People’s Bank of China encourage investors to scatter from riskier


GBPUSD breaches 1.4500

Sterling bulls effectively exploited the declining Brexit campaign which offered a foundation for

the GBPUSD to surge above the psychological 1.4500 resistances during trading on Tuesday.

This was complimented with Dollar vulnerability that offered additional momentum for the

GBPUSD to fly to fresh 10 week highs at 1.4638. Despite data from the UK still following a soft

path, the diminishing Brexit fears coupled with “Bremain” statements from major financial

heavyweights have provided a platform for bullish investors to pounce, despite the fundamentals

pointing down. With under 2 months left until the E.U referendum, volatility may be set to

intensify as debates escalate over if the UK should remain in or leave the E.U. While the

GBPUSD is undeniably bullish as of now, investors should keep diligent as data from the UK

remains soft meaning that the BoE has little incentive to raise interest rates anytime soon.

From a technical standpoint, the GBPUSD has breached a key resistance. The next major

barrier is at 1.4650.

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