US dollar rises and stocks fall after FOMC minutes

February 20, 2014

The recent weaker economic data had lead many, myself included, to posit that the Fed will have to taper the taper. Not that I was expecting it to show in this months FOMC minutes but eventually if the recent lower, weather induced, trajectory continues.

This morning at 6am AEDT however the release of the recent FOMC meeting minutes have put the cat firmly amongst the pigeons. Or perhaps to use more precise Fedspeak – the Hawks amongst the Doves as it seems they are not inclined to pause any time soon. You can read our US colleagues FOMC piece here.

As a result the US dollar caught a lift and stocks turned down once again after the earlier recovery from the lows of the Day. With 15 minutes to go before the close the Dow is off 0.47%, the Nasdaq is down 0.86% while the S&P 500 is off 12 points to 1829 for a loss of 0.64%.

It is important to note that the Fed’s words seem to have had the most impact because the data in the US is continuing to print poorly. Overnight there was the fall in housing starts and the drop of 4.1% in mortgage applications suggesting it might be more than just weather. Equally the PI increase of 0.2% in January while still very low was better than expected which the fed will like as it tries to keep inflation above 2%.

The S&P 500 looks tenuous to me and I agree with the Founder of Business Insider Henry Blodget that the market is still vulnerable. You can read his latest piece here while I look at the chart below.

That is an ugly candle on the futures – look for a move to 1805/10 and if it breaks watch out.

In Europe stocks went nowhere with the FTSE and DAX flat, while in Paris the CAC rose 0.24%. In Milan stocks fell 0.2% and in Spain the IBEX 35 rose 0.11%.

Locally in overnight trade on the ASX Futures the March SPI 200 contract fell 4 points to 5271 bid.

On global FX markets there was a bit of volatility within a fairly tight range. The Pound was weaker initially after the unemployment rate ticked up to 7.2% against expectations of 7.1% but it was back in the black pre-FOMC minutes release but is back under 1.67 again now at 1.6688 fairly unchanged for the day. It was similar price action story elsewhere with the Euro making a high of 1.3773 before pulling back to sit at 1.3737 down 0.14% on the day. The Aussie is down a little also at 0.9005 off 0.22% while USDJPY is largely unchanged at 102.37.

Yesterday I wrote a piece saying that it was time for an Aussie Pullback and overnight price action simply reinforces to me that this is on the cards.

Target – 0.8958 for the moment

On commodity markets gold’s sell off from the technical resistance continued losing $11.40 oz or 0.86% to $1313. Crude, somehow, is up again even though the IMF has released a quite circumspect outlook for growth. With Nymex up another 1.20% to $103.66 this is a big tx on global growth. Copper lost 1 cent while the Ags rally continued with corn up 1.17%, wheat 1.35% higher but soybeans lost 0.51%.

On the data front today we have some big trigger points with the “flash” HSBC and Markit PMI’s for this month being released. China is the key in our time zone and then we cycle around the world this afternoon and tonight.

In Europe PPI is out along with US CPI which is going to be huge. Jobless claims are also out in the US tonight.

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