- New Science in old markets -

The Fed dithers. Currencies are stirring – sell the $?

There have been some repercussions from yesterday's Fed meeting and announcements. The principle feature was that Janet Yellen's remarks were considerably more 'doveish' in tone than those of some of her colleagues in recent weeks and so the market now expects 'lower rates for longer'. Whether or not there is a small rate rise before the end of the year is now of less importance than the expected trajectory of future rates which appears to be very modestly upward, if upward at all. This is all conjectural of course as the communication skills of the individual members of the committee and of its Chair leave a lot to be desired, even by the standards of these incoherent times.

Stocks have risen and should rise more, as we have been writing for a while. Bonds also rose, but not as much and we don't know what will happen there - we are tempted to find a place to sell (again) but we don't have any usable signals (yet).

The Dollar also weakened and this looks as though it may continue. It is a little early in the day to call for a 'break' but there have been daily-scale compressions in the $ index and some of the $/European pairs in the last day or so and these have (so far today) led to $ weakness. The charts:

index-e-comps

Something similar has happened in $/Swiss and also in €uro/Swiss. The Swiss franc seems to be the main beneficiary and so is probably the better candidate to buy than the €uro:

swiss-and-swiss-e-comps

There are no equivalent signals in the £ and the Yen against the dollar but there are support areas, both from simple trendlines. Bottom extensions formed after the 'Brexit' drop but are too old to have any current effect. Both £ and yen are obviously candidates to buy if the $ is going to weaken generally and close stops can be placed. As far as the Yen is concerned, the market is still digesting the BoJ's decision to target the yield curve and the effects on the currency are not clear.  They didn't reduce rates even further, which could be a supportive influence. There is also the possibility that the BoJ will intervene to restrain the Yen - this has not been mentioned much but the whole Japanese establishment is in the mood for intervening in markets it seems, so why would the exchange rate be any exception?

cable-and-yen-uptrends

It may be better to wait until nearer the end of the day to confirm that the compressions mentioned earlier have actually broken, but it is also quite likely that the markets will move quite a bit in the rest of the day. Jump now if you are bold.