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Fed ‘dovish hold’ & EUR/USD > 1.14 - DAILY MARKET UPDATE

Chart of the Day: EUR/USD (Weekly candlesticks)

•    FOMC Conclusions
•    US dollar drops after dovish Fed
•    Shares mixed as tech drives the Nasdaq to 10k close
 

MARKETS


The US dollar fell in reaction to a mostly dovish Fed meeting that lacked the big policy changes but kept up the message that stimulus is here to stay. The reaction in stock markets was mixed with the notable exception of the Nasdaq Composite, determined to close above 10,000 for the first time. Asian markets had been mixed and European shares were down before the FOMC. Gold rallied over $20 per oz in reaction to the dovish Fed. Oil prices pushed higher despite an unexpected build in US crude inventories.
 

GURU WISDOM


“Every trader has strengths and weakness. Some are good holders of winners but may hold their losers a little too long. Others may cut their winners a little short but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.” - Michael Marcus
 

FOMC Conclusions


The Fed saying it will “increase its holdings … over coming months at least at the current pace” was the key statement from today’s Fed meeting. The implication is that stimulus is here to stay over the next few months, even if market and economic conditions don’t really warrant it. 

The Fed tactfully avoided committing to any new policy changes – which wrong-footed us since we thought there would be some form of forward guidance introduced. The Fed said it “reviewed explicit use of formal guidance, asset purchase as well as experience of targeting the yield curve- and will continue discussions at upcoming meetings.

A good line from Chair Jerome Powell was that “We’re not even thinking about thinking about raising rates.” Naturally a rate hike is off the table for a while. To summarise the Fed has said it is “strongly committed to doing whatever we can for as long as it takes” – but while there is smooth sailing in markets, the conclusion appears to be that so far it’s doing enough. After a big run higher, it will be a test for stocks especially to keep pushing on without the promise of extra stimulus.
 

Dollar drops


The dollar dropped against major Asian FX including USD/CNY, USD/JPY and USD/SGD while European currencies rose including EUR/USD and GBP/USD, which took out 1.28 for the first time since March 11. They say “don’t fight the Fed” and the market is abiding by that rule for now – and the dollar is under pressure. 

Looking forward to later today, US jobless claims will be important to watch for near-term sentiment, especially after the optimism generate by last week’s non-farm payrolls surprise. 
 

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