A dovish Fed sends the dollar even lower, signaling no intention to taper asset purchases anytime soon.
The Fed said yesterday that it has no intentions of tapering asset purchases any time soon. And to ensure investors get the message, it even hinted that it isn’t even thinking about tapering.
Financial markets liked what the Fed said, and the US dollar took another leg lower, which should be good for stocks. The EUR/USD rose to 1.2150 from 1.17 only a few weeks earlier, and stocks bounced on the Fed’s message, but not by as much as the message would have implied.
The Dow, the S&P 500, and the Nasdaq 100 indices remain close to all-time highs. Apple and Facebook reported much better-than-expected earnings, further fueling the bid behind the bullish sentiment that’s pushing stocks.
Since the European and UK stock markets still suffer from strong currencies against the dollar, their stock markets have had a hard time advancing. Nevertheless, the indices are close to their recent highs.
It is all about commodities these days. From copper to lumber and iron, commodities are sharply higher, with no end in sight.
Today and tomorrow are key days as the trading month ends, and the Advance GDP data will be particularly interesting.
The market expects the US economy to have grown by 6.5% in the first quarter, but the signs are that we will see even stronger growth. The bigger the difference between the actual and the forecast, the stronger the market reaction.
Markets to Watch
The Gold, USD/CAD, and Copper markets are in focus today.
Gold didn’t react to the Fed’s message. This 4-hour chart shows the gold price reacting at dynamic resistance, although the time frame is not large enough to warrant a strong pullback. Nevertheless, gold’s inability to push over $1,800 spells troubles for the dollar sellers, as gold’s decline from all-time highs last year triggered a strong dollar reaction across the FX dashboard.
The Bank of Canada was the first major central bank to announce the tapering of the asset purchases it started during the pandemic. Like it or not, the market needs to prepare for other central banks to follow the same path sooner rather than later (providing the pandemic is defeated).
It is worth looking at the USD/CAD chart, which is in a strong bearish trend, falling from 1.46 in March 2020 to the current 1.23. Only a move above the falling trendline may signal a reversal.
Copper struggled at the $4,000 level but only to form a continuation pattern. The market broke out of a pennant formation, and the $4,000 level turned into strong support given by the triangle’s apex.
Winners and Losers
Commodities continue to trade bid across the board, especially raw materials, while investors keep selling the dollar.