There has been a mixed read through from the Federal Reserve monetary policy decision yesterday. The FOMC is still accommodative but remains cautious in its outlook for recovery.
Looser monetary policy for longer will ultimately support markets and underpin the risk recovery, with rates not rising until at least 2022, whilst asset purchases will continue to run for several months. Initially markets took this as a risk positive, however, the positive mood has quickly dissipated. The Fed is rightfully downbeat on the economic recovery. The road to a V-shaped recovery may not be as smooth as hoped for.
Concerns over localised evidence of increasing COVID-19 infection rates in Texas reflect this and have seen the risk recovery roll over this morning. Suddenly today, we see safety first. The oil price is over -3% lower, whilst the dollar and the yen are performing well through major forex. Equities are sharply lower as US futures move into retreat. There is plenty of opportunity to take profits on what has been an incredibly impressive risk recovery and it seems that this morning, this move is kicking in. This move is overdue and is likely to end up being the source of the next opportunity to buy again. For now though, a correction is forming.
DXY is testing the 25 line of the channel from the 2011 low. This line was support at the March low. Also, the June 2019 low is 95.84. DXY closed today at 96.08 after making low at 95.72. That’s right…DXY is almost exactly flat over the last year. At risk of sounding like a broken record, ‘this is a good spot for a rally attempt’. Markets (stocks down and USD bounce) started to fade after the Fed so I’ll stick with yesterday’s ‘sell the news’ call.