Today’s Spotlight Market
Coming as little surprise to most traders and analysts, the European Central Bank (ECB) did not take any action on interest rates or signal further moves to provide any additional stimulus early this morning, despite concerns of the effects on the overall European economy of the United Kingdom voting to leave the European Union.? Since this was the first meeting of ECB officials following the U.K. vote, it appears that ECB Chairman Mario Draghi is taking a page from the Federal Reserve and will focus on upcoming economic data to determine if additional stimulus measures are needed.
Fundamentals
Those traders who have been fortunate to catch the bull market run in several commodities, most notably the precious metals sector, are starting to see some headwinds of late that appear to have stalled any additional upward momentum, at least for the time being. The recent strength in the U.S. Dollar is probably the largest factor in the price correction seen in markets such as Gold, Silver and Crude Oil, as the U.S. Dollar index has rebounded to 4-month highs. So what is behind the revival in the ?greenback???
First, it appears that the sharp rebound in jobs that was reported in the June Non-Farm Payrolls Report has once again put the idea of a possible interest rate hike by the Federal Reserve back on traders? minds. The Fed ultimately may wish to remain very cautious on surprising financial markets with an unexpected rate hike — especially as we head into the final months prior to the U.S. presidential elections in November –? unless upcoming economic data ?forces? their hand on a rate hike.
The Fed Funds futures market is currently pricing a 25% chance of a rate hike by the September Federal Open Market Committee Meeting (FOMC) and a nearly 51% chance of a rate hike at the December FOMC meeting which occurs after the U.S. elections.?
In addition, a move by investors back into so called ?risk assets? such as equities following the ?Brexit scare? has propelled U.S. equities to all-time highs. Given the uncertainties surrounding how the European Union and the United Kingdom will resolve their separation, it is little surprise that assets may be flowing to the U.S. and moving not only into equities, but U.S. Treasuries as well, as U.S. rates, while historically at very low levels, still look attractive compared to most of Europe and Japan.
While the U.S. Bond market currently is in a ?correction? mode as well, it would not be a surprise to see both U.S. Equities and Treasuries maintain their gains this year, which could add additional support to the U.S. Dollar as investment funds continue to move to the U.S. as the ?best? alternative compared to Europe and Asia.?? ?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for the U.S. Dollar Index futures, we note that for the past 5 years, the market has moved in ranges from 80.000 to 85.000, and then from about 92.000 to just over 100.00, with relatively little time from 85.000 to 92.000. We are currently in the middle of the 92.000 to 100.000 price band with momentum favoring the bulls, as prices have once again moved above the 20-week moving average. The 14-week RSI has turned upward, with a current reading of 57.21. Chart support is seen at the May 2016 low of 91.88, with resistance seen at the November 2015 high at 100.60.
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