FOMC Minutes surprise markets by hinting at tapering. The US dollar gained in the late North American session, while stocks held relatively well. Cryptocurrencies crumble.
Financial markets were taken by surprise by the FOMC Minutes released late in yesterday’s North American trading session. No one expected for the Minutes to hint at future tapering from the Fed – but that is exactly what the Fed signaled.
The Minutes are released three weeks after the FOMC Meeting, and they disclose what the members discussed. One particular phrase caught the market’s eye in yesterday’s release –some FOMC members considered that it might be appropriate, at some point in time, to consider the adjustment of the asset purchasing.
More precisely, this is the first tapering signal from the Fed. When this will happen is not clear, but it is the first hint that tapering is on the table.
The US dollar reacted timidly at first but then more aggressively. The move higher in the dollar came at the end of a terrible day for the cryptocurrency market, which saw Bitcoin and Ethereum losing more than 10%, respectively 20%, in one single day. At some point during the trading day, the drop was even bigger.
Dow Jones traded with a weak tone too, and so did the other equity market indices. At first, it was affected by the cryptocurrency market carnage. Next, the Fed’s announcement triggered another selloff.
Oil dropped more than 3% while gold remains steady, threatening to break above $1,900. Silver, on the other hand, dropped 2%, as did platinum.
The economic calendar is pretty light today, with only the Philly Fed Manufacturing Index and the Unemployment Claims in the United States as possible to trigger some market moves. The Bank of Canada’s Governor Macklem speaks later in the North American session, and it would be interesting if his remarks will affect the Canadian dollar strength.
As for the London session, the market will likely digest the Fed’s hint of tapering. If the cryptocurrency market decline continues today, the dollar may receive unexpected support from crypto traders turning back to fiat.
Markets to Watch
Dow Jones, EUR/USD, USD/JPY – markets in focus today.
The Dow Jones daily timeframe shows a potential head and shoulders pattern. The spike higher to the 35,000-point mark and the subsequent move lower below 34,000 resembles the head of the pattern, and now the focus shifts to the measured move. If the Dow does not manage to climb back above 34,000 in the upcoming sessions, the short-term bias turns bearish.
The EUR/USD pair benefited from the Fed’s hint of tapering in the upcoming sessions, but more is needed to call the current price action bearish. The pair needs to break the lower edge of a rising wedge pattern as a sign of a reversal in place. Also, the series of marginal higher highs does not bode well for future advances.
In all the mayhem seen this week, gold acted as a true store of value. While cryptos, the digital alternative investments, crumbled, gold gained. As long as the double bottom in the $1,675 holds, gold bulls will look to buy the dip.
Winners and Losers
The US dollar shows signs of strength, while the euro eases a bit. The next two trading sessions are key to how the two currencies will perform in the rest of the quarter.