Dovish message from Fed sends dollar lower
I really should not have been surprised by the overnight price action. If there is one thing the last 15 months has taught us, it is the power of the buy the dip strategy as central banks continue pouring free money into the world’s financial system. Last night was a classic case in point, as the great post-FOMC/Bullard unwind of the global reflation trade abruptly halted and reversed.
All it took was a transitory inflation comment from Fed Chairman Powell at prepared congressional testimony and a dovish comment from Fed President Williams, to swamp pseudo hawkish comments from Fed presidents Bullard and Kaplan. As a result, the 5-minute macros (seemingly every “macro” fund these days) and the FOMO headless chickens of the investor/retail flocks piled onto positioning they couldn’t get out of fast enough on Thursday and Friday.
The US dollar fell overnight, stocks, notably the unloved S&P and Dow Jones rallied, gold picked up, and the US yield curve steepened as yields on the long-dated bonds rose once again. So, has the global reflation trade unwind run its course? We don’t really know. Is inflation transitory or sticky? Again, we don’t know, and I am not sure it really matters, but no one is listening to me on that point. I have said it before, and I will say it again, if the post-GFC world is going to implode if interest rates rise to 1.0 to 1.50%, we really are stuffed as that’s still effectively free money. Does the Federal Reserve know? Well, given the divergence in comments overnight and the market spoof (which I thought was illegal these days?) on “guidance” into the FOMC, they clearly don’t either.
The headless chicken volatility is exacerbated by this week being exceptionally light on tier-1 data, something I alluded to yesterday. Potentially, softer US Personal Consumption, Durable Goods or Initial Jobless Claims could see the global reflation trade unwind start once more. Or maybe not. You can cut the cake whichever way you want if you are a headless chicken these days.
You know it is a strange day when I comment on bitcoin for the second time in a week. But its price behaviour looks almost reasoned and logical when contrasted with the herd-like mediocrity described above. Fresh from bashing domestic bitcoin miners on Friday, China ordered financial institutions, including Alipay, to “investigate and identify” crypto-related bank accounts, and block crypto-related transactions. The list of China financial institutions hitting the wires promising to comply this morning is a veritable who’s who.
That was enough to pummel bitcoin yesterday, which fell by just over 11.0%. However, it has clawed back some losses, rising 3.60% to USD32,760.00 this morning in Asia. However, the chart picture still looks grim with the support line resting around USD31,300.00, but the USD30,000.00 area is the one ring to rule them all. Failure of USD30,000.00 will open the trapdoor to a sub-USD20,000.00 move.
Having said that, I am not so sure that the digital day of reckoning will be today. Bitcoin’s technical indicators are nearing oversold territory. Additionally, the press is filled with doom and gloom “death cross” stories, caused by the 50-day moving average crossing below the 200-day moving average. That is not to diss the press or the technical picture, but my experience of death crosses (30-years plus) is that they are a leading reverse indicator in the short-term, which is why I never mention them. It is as good a reason to be digitally long the beast of blockchain as any today.
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