Fed Keeps Liquidity Flowing; Dollar Feels The Pressure

  • The Fed will purchase T-Bills into Q2.
  • Fed Chair Powell is not comfortable with inflation under 2%.

The Fed is to maintain its purchasing of T-Bills at least until Q2 of 2020. This means every month $60bn is being injected into the financial system, and that the Fed’s balance sheet continues to grow. As such, it is quite likely that the USDOLLAR will lose purchasing power as the money supply grows.

USDOLLAR Sells Off  After Fed Press Conference

THE USDOLLAR H1 chart has sold off as the market comes to terms that liquidity is set to continue. It has charted a series of lower peaks followed by  lower troughs. This is the classical definition of a downtrend. Moreover, we can see that the green 5-hour EMA has crossed below the orange 10-hour EMA (aqua ellipse) and that the stochastic has turned down (blue rectangle). These are bearish developments and may be the precursor to the next lower trough.

EURUSD Tests 1.1050 After Strong Impulse

The EURUSD has raced ahead and is now testing the 1.1050 level. The pair found support at the central pivot (P) which overlapped with price support at 1.1025 (green shaded horizontal). The green 5-hour EMA is above the orange 10-hour EMA (aqua ellipse) and the stochastic is bullish (blue rectangle). Moreover, the EMAs have angle and separation, which denotes that a fast momentum is present.

GBP Benefits From Both Fed and BoE; Develops Strong Relative Strength

Yesterday the BOE kept it’s official bank rate at 0.75%. Importantly only 2 MPC members (Haskel and Saunders) voted for a cut as opposed to the forecast of 3. Moreover the statement shows hints of hawkishness, “if the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target.” Accordingly the EMAs crossed bullishly (aqua ellipse), as did the stochastic. However, the stochastic is now maintaining levels close to or over 70 (blue rectangle). This is extremely positive and if these levels are maintained there is a strong probability for further gains.