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Andreas Zanin
Analysis | April 29, 2021

KTM FX Daily: Market views after dovish Fed policy meeting; Chart of the day USDJPY

Overnight’s Fed announcement is in line with the market expectations. As expected, Fed kept monetary policy settings unchanged. G10 currencies were a little higher against the dollar, but market reaction was minimal to the Fed’s policy update. 

The 10-year yields remained at 1.63%, whereas Gold added $5 into closing. In the Asia session on Thursday, Gold quickly added another $7 to $1779 but remained capped at 100MA. At the same time, majors hold firm against the dollar. 

Our view before going through actual Fed monetary policy latest updates:

  • We expect U.S. Treasury yield continues to march higher, but the max will be around 2%. Last month, the yields peaked at 1.76% and slid to 1.50%. Now it is at 1.63%. 
  • We expect Fed to signal to tamper in late 2021 to early 2022. 
  • The current tone is dovish but looking forward a quarter from here; it shapes to hawkish direction. Near-term reflation trade back on the table, but we advise to be cautious on selling the dollar. 

The Latest Fed monetary policy showed an upbeat tone on the economy. But all the eyes on the communication around inflation. 

Finally, we have got this, “Inflation has risen, largely reflecting transitory factors.” And the Fed also said, “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.” 

Highlights: 

  • The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. 
  • Reaffirmed the Federal Reserve would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month. 

Market reaction:

Equity market: Equity benchmark indices in Asia rose a little after Fed confirmed it is too early to consider tampering. In comparison, U.S. indices closed in red overnight. 

100MA:

The U.S. dollar faced stiff resistance before the Fed meeting and continues to slide, whereas EUR holds that same moving average and marching above 1.21 levels. 

Gold trading below 100MA and facing stiff resistance in the precious metal space, whereas Silver trading above the same.

A decisive breakout above $26.60 would trigger a forward thrust towards $27 and $27.50 levels. Compare to Gold; Silver is well-positioned to edge higher. A weekly close above $27 allows the price to stretch its wings towards $28 and $28.70 levels. 

Supports: 

Gold: $1758, $1745 and $1723 

Silver: $25.50, $25 and $24.60

Looking ahead, we will get 1st estimate of U.S GDP. Consensus is looking at 6.6% q/q. If the 1st estimate hits the wires above consensus, overnight moves are likely to fully reverse. In this case, USDJPY will be watched closely.

Chart of the day:

USDJPY -Buying dips favors the trend. 

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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