FOMC Is Hawkish, No More Cuts Are Coming
The FOMC cut rates by a quarter point this week and that was expected. What was also expected was an outlook for more cuts, possibly THREE more cuts, and that is not what we got. Quite the opposite in fact, based on the individual opinions of the member of the committee both voting and non-voting the outlook for future cuts is nil. Within the committee five were in favor of no cuts this month and another five in favor of no-more cuts this year which is enough to ensure that we won’t. Get any more cuts, that is.
The Dollar Index reflects this view. The index retreat from its recent high over the past two weeks but found support above the short-term moving average. The moving average is trending higher and the indicators are pointing to a trend-following swing in prices so I am optimistic a move to retest the recent highs is brewing. Because data in the EU, the UK, and Japan all support expected easing from the ECB, the BOE, and the BOJ, a move to new highs is also expected.
The EUR/USD is likewise consolidating at the short-term moving average for a trend-following move. The difference is this move is bearish and likely to the pair down to a new low. Stochastic is already showing a strong bearish entry signal so a move to retest the current low is expected. If MAC confirms the move a break to new lows will follow soon after. Possibly in tandem with ECB easing or economic data that supports ECB easing.
The GBP/USD looks like it might be in a bullish reversal but I don’t think so. What I see is an asset that might have reversed if not for shifting outlook and Brexit uncertainty. When it comes to the Brexit the only thing that is certain is uncertainty, the latest news is that the Supreme Court will rule on Johnson’s suspension of Parliament next week. Back to the point, the recent rally is extended and already showing signs of snapping back and well below the prime resistance target. The indicators are bullish but both are high in their ranges, show an overbought market, and poised to fire strong bearish signals. A move to retest the EMA is likely, a move below that will probably retest the recent low.
The USD/JPY is an example of what makes technical analysis so tricky. At face value, this chart is very similar to the GBP/USD but to me, the bias is bullish in favor of the dollar. While the pair remains below some resistance targets it is above the key target for reversal. At the same time, the indicators are bullish but have cooled off somewhat allowing room for another push higher in prices. The pair may retest the EMA but, if it does, it will be an opportune entry point for patient traders.