The FOMC Knocked the Buck. US Dollar to Extend Losses
Eric Furstenberg • 3 min read
The FOMC (Federal Open Market Committee) meeting minutes on Wednesday evening didn’t benefit the US Dollar at all. Some members were concerned about the relatively strong US Dollar which may threaten price stability, and of course, the U.S. economy’s ability to sustain the CPI (Consumer Price Index) at or above their target of 2 percent. Almost directly after the release, the US Dollar depreciated against all the other major currencies, including the British Pound. On Thursday we saw some decent follow-through of this bearish Dollar momentum. Things don’t look too rosy for the Buck at the moment. Let’s look at a few charts:
GBP/USD – A Decent Bounce Today!
GBP/USD Daily Chart
The Pound performed quite well today and gained about 100 pips against the Buck. This pair has been trading in a large range which seems like it’s lasting forever. At the moment the pair is trading above its 20-day exponential moving average again, after its rugged performance today. The picture looks a bit different on the weekly chart, however:
GBP/USD Weekly Chart
Here we can see that the current market price is at the 20-week exponential moving average. I would like to see the price overcome this dynamic resistance and post a firm weekly close above it before getting too excited about the topside on this pair. Even then, there would have to be much more bullish evidence before I would engage in a long-term buy position. This is the conservative approach. Many traders have turned bullish on the Pound quite a while ago. Of course, back then there was much less conviction for a long play, but there was more profit potential in an early entry, of course. Let me show you something else on the daily chart:
GBP/USD Daily Chart
The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a technical indicator which reveals a lot of information by only taking a quick glance at it. After all, the Japanese phrase “Ichimoku Kinko Hyo” means “instant look at the balance chart”. I have simplified this indicator in the chart above and removed some of its elements to isolate only the cloud part. There are different ways to use this indicator, but the cloud component gives us an instant indication of trend direction, as well as support and resistance areas, just to name a few.
In the chart above, we can see that the price traded below the cloud for quite some time, indicating a downtrend. Then the price tested the cloud, but the cloud managed to resist and subdue the price for a while. After heading lower first, the price eventually managed to break through the cloud and has been trading above it since then. The cloud, which was initially an important barrier of resistance, has now turned into an important element of dynamic support. Now if the exchange rate gains more and more traction above the cloud, we could be looking at an even larger rebound by this pair in the weeks and months ahead.
Keep an eye on the Pound guys! Perhaps this currency is greatly undervalued and could experience a massive relief rally somewhere in the next few months if we get just the right trigger.
Gold – Not Heavy at All!
Gold is flying! The price of this precious yellow metal has consolidated for a few days until it shattered this consolidation today with a bang. I, and many other traders, really like it when moves like this happen. These forceful trend continuations will fill your bank account if you know how to trade them correctly. Let’s look at a daily chart of XAU/USD (Gold):
Gold Daily Chart
The black horizontal line was an important resistance level which capped the price for a couple of days. Today this level was shattered, which makes the long side of this commodity so much more attractive. Let’s see if the price continues to squeeze higher in the days to come. We might get some really great buying opportunities here if we wait for the right signals.
That’s all for now, guys. Don’t forget about the Canadian CPI numbers tomorrow (Friday) at 13:30 GMT. This has the potential to really move the Canadian Dollar.
Have a great weekend, and an excellent trading day tomorrow!