Forex Update: Dollar Plunges Again as Meeting Minutes Confirm Dovish Fed Shift

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1552 0.98%
GBP/USD 1.2802 0.70%
USD/JPY 108.02 -0.65%
AUD/USD 0.7180 0.57%
GOLD 1,294 0.67%
WTI Crude Oil 52.26 4.96%
BTC/USD 4,004 0.24%

Central banks, and in particular the Federal Reserve continue to shape global financial markets, with the recent sharp dovish shift of Fed Chair Jerome Powell getting another confirmation today. The minutes of the latest Fed meeting revealed that several members of the FOMC committee were in favor of leaving the benchmark interest rate unchanged.

That’s in sharp contrast with the official monetary statement released together with last month’s rate hike, and it added to this week’s bearish pressures on the US Dollar. The Euro, the Yen, the Swiss Franc, and gold all gained significant ground compared to the reserve currency, while the gains of some of the smaller risk-on currencies were less pronounced, despite the broad rally in risk assets across the globe.

US stocks extended their explosive oversold rally, but the rest of the world is far from being exuberant, and it’s unlikely that the global bearish shift will be reversed by a Fed policy shift, but the counter-trend move might still have ways to go. Tomorrow, several Fed members will speak yet again, including Jerome Powell, and we might get some specifics regarding the new, flexible strategy of the Federal Reserve.

Technical Analysis

EUR/USD, 4-Hour Chart Analysis

The break-out in the EUR/USD was arguably the most important move in forex markets today, as the most-traded pair moved past the crucial resistance zone near 1.15 thanks to the Fed’s dovish confirmation and the continued risk-on rally. The Euro hit its highest level since mid-October, and the pair could soon test the October swing high near 1.1625.

While even a rally up to the resistance zone near 1.18 is possible here, we still consider any rally as a selling opportunity from a broader perspective, with the long-term trend clearly being bearish. That said, short-term traders could play the break-out, with further support found at 1.1440 and near 1.13.

USD/CNH, 4-Hour Chart Analysis

The Chinese Yuan has been enjoying a strong rally thanks to the renewed trade optimism, which also added to the selling pressure on the Dollar with regards to the other key pairs. Tomorrow’s announcement will likely cause further volatility in the China-related assets, but after the correction runs its course, we believe that the currency will resume its broader downtrend due to the deep structural issues in the Chinese economy.

The current round of the trade talks between the US and China concluded today in Beijing, but the two negotiating sides will only issue a coordinated statement tomorrow. For now, all signs indicate a successful meeting, with a likely roadmap until the Match 2 deadline of the “trade truce”, and that optimism helped risk assets throughout the day, while pushing the pair to a new 5-month low.

Shanghai Composite Index CFD, 4-Hour Chart Analysis

The main Chinese benchmarks were notably weak in recent days, despite the surge in the currency, the global risk rally, the trade optimism, and the PBOC’s monetary easing operations. This relative weakness, together with the muted rally in Europe is a negative sign for risk assets, and even a stronger bounce in China would only qualify as a counter-trend rally as the bearish global leaders are in strong and stable declining trends.

WTI Crude Oil, 4-Hour Chart Analysis

Crude oil was one of the main beneficiaries of the oversold rally, with the battered WTI contract surging by $10 per barrel off its Christmas panic low, topping the $50 per barrel price level thanks to 8 consecutive up days.

Given the extent of the preceding sell-off, the move could reach the strong resistance zone around the $54 level, with a broad declining trendline also being in the area. Fundamentals remain negative for the crucial commodity, even considering the OPEC’s supply cut, and we don’t expect oil prices to trend higher in the coming months.

Key Economic Events Tomorrow

ChartBook

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

EUR/JPY, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

Commodities

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

 

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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.