DOLLAR RISES FOLLOWING HAWKISH FED AND EASING OF SYRIA TENSIONS
The financial markets cooled today after the tensions started yesterday between the United States and Russia. Early today, following pressure from the conservative media, Trump receded from yesterday’s tweet about firing strikes in Syria. Conservatives have questioned his reasons for going to another war in Syria after years of condemning Obama of doing the same. US futures were up with the NASDAQ and S&P 500 gaining by 35 and 15 points respectively. In Europe, Germany’s DAX rose by 55 points while UK’s FTSE was up by 5 points.
Yesterday, we received the Fed minutes for their March meeting. The minutes showed that officials were optimistic about the economy following the tax cuts that were passed in December and the omnibus bill that was signed recently. As such, they estimated that the economy will grow by 2.7% this year and 2.4% in 2019. That was higher than their December’s projection of 2.5% and 2.1% growth. On tariffs, they concluded that while the steel and aluminum tariffs would not affect growth, those dealing with China might have major implications.
In Europe, data from Eurostat showed that industrial production in the region was weaker than that of February and what analysts were expecting. The data showed that production in the 19 countries that share the euro was down by 0.8% MoM and 2.9% YoY. Analysts were expecting the data to rise by 0.1% and 3.8% respectively. On a positive note, January’s data was revised up to 0.6% from the -1.0% reported before.
In the United Kingdom, Brexit Minister, David Davis said that the parliament would veto any agreement reached with the EU if it failed to show what the future relationship would look like. The UK wants to have a trade deal with the EU that starts immediately after it officially leaves the EU in March 2019. Before the UK exits, it will have to make a large contribution worth about $55 billion to the EU to honor its obligations.
After reaching a high of 1.2960 yesterday, the EUR/USD pair started moving down. This happened following the release of CPI data and the FOMC minutes. Initially, the pair tested the 23.6% Fibonacci Retracement level of 1.2350 before moving lower and testing the 38.2% level. It is now moving lower to test the 50% level of 1.2305. There are chances that the pair will move higher after testing the 1.2305 level. This is evidenced by the MACD indicator as shown below.
The USD/CHF pair found a floor on Tuesday when the pair established a double bottom of 0.9533. It then started a rally that aimed to cross the two-week high of 0.9650. Today’s rally can be attributed to yesterday’s Fed minutes and today’s statement from Trump. There is a likelihood that the pair could test the two-week high. After this, it could retrace as the bulls take profits. As shown below, the power of the bulls seems to be weakening after crossing the highest point since yesterday.
The GBP/CHF pair started a major rally in early March, when it found a floor at 1.2860. Since then, the pair has rallied and is currently trading at 1.3863, which is the highest level since June last year. The question now among investors is whether the rally will continue? The pair’s double MAs are currently indicating that the pair could continue the upward trend. However, the RSI is currently at 78 which is an indication that the pair could soon retrace to 1.3490, the 23.6% Fibonacci Retracement level.