Daily Analysis: Dollar Hit Hard, Gold and Oil Jump, as Yields Pull Back after Rate Hike

Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2718 -0.24%
DAX 12,266 -0.44%
WTI Crude Oil 65.22 2.13%
GOLD 1333.00 0.61%
Bitcoin 9,094 1.34%
EUR/USD 1.2360 0.98%

After a predictably choppy and illiquid Fed-day on Wall Street, trading activity exploded as usual after the rate decision and the release of the monetary statement, with the first press conference of Jerome Powell also stirring up markets globally.

Treasuries and the Dollar were in the epicenter of the post-Fed action, as expected, but as the central bank’s message was rather confusing, markets reacted in a mixed and volatile way to the first rate hike of the new Fed Chair.

US 2-Year Yield, 4-Hour Chart Analysis

Currencies registered the largest move before the announcements among the main asset classes, and as far as directional moves are concerned that remained the case following the key event too.

Long-Term Hawkish but Short-Term Dovish Fed Pushes Yields Lower

Dollar Index, 5-Min Chart

The US Dollar slid lower against all of the major fiat currencies, and gold (which is a commodity and currency too) also surged higher, actually rising the most of all crucial assets, topping 1335 for the first time in two weeks. On another note, crude oil also extended its recent bullish move, with the WTI contract rising above $65, for the first time since early February, helped by the surprise inventory draw in the US as well.

Gold Futures, 4-Hour Chart Analysis

But back to treasuries, the decline in yields across the curve was behind the elevated forex action, and as we initially speculated short rates moved sharply lower, as investors likely removed their hawkish bets for 2018.

While some analysts dubbed the releases hawkish, we think that the market correctly reacted to the biggest surprise of the day, the Fed’s reluctance to incorporate the recent inflationary signs. That explains the dip in short-term yields and the Dollar, while the long-term hawkishness was heavily discounted, as the market is still not buying the long-term growth story.

Stocks Attempt Rally but End Near Lows

S&P 500, 4-Hour Chart Analysis

With all that in mind, US stocks should have been slightly boosted by the subtle developments, and the major indices tried to rally after the initial volatile period, but the broader technical setup overwhelmed the attempt, and equities finished near their lows. Before the Fed, US new home sales came in well above the consensus estimate while the deficit of the current account was slightly wider than expected.

The crucial Nasdaq got close to its two week low before the closing bell, and still, all signs point to a continuation of the correction, although should short-term yields substantially decline that could help a recovery down the road.

Cryptocurrencies

The segment remained bullish regarding the short-term picture, despite a sudden selloff before the Fed-decision, as the losses were limited, and the majors recovered a large part of the dip in after-hours trading. The quick bounce is another in the list of bullish signs that emerged since the weekend bottom, as despite the notable laggards, Ethereum and Ripple.

LTC/USD, 4-Hour Chart Analysis

Most of the coins have broken out of their recent downtrends, and with the lead of BTC, LTC, ETC, IOTA, EOS, Cardano, and Monero, a robust rally might be in the works, even as the broad declining trend is intact, and sharp sell-offs are still in the cards before a clear break-out in the case of most of the majors.

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.
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