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• Greenback pulls back on expectations for ‘dovish’ Fed minutes today
• Pound outperforms, soars back above $1.30 without Brexit news
• Gold sails past 10-month highs amid a quiet flight to safety

Dollar retreats as traders brace for ‘dovish’ Fed minutes

The dollar gave up some early gains on Tuesday to close the session much lower overall against a basket of six major currencies, as US traders returned to their desks after a holiday. While this retreat started without a clear catalyst, some cautious-sounding remarks by Fed officials likely exacerbated it. Cleveland Fed chief Loretta Mester, who is typically an arch-hawk, joined the chorus of worried officials and indicated she’d be comfortable allowing the balance sheet unwinding to come to a stop soon. Likewise, the influential President of the New York Fed, John Williams, said he’d only back more hikes if the outlook changes to the upside.

This caution – particularly from a hawk like Mester – probably amplified speculation for a cautious tone in the Fed minutes of the January meeting, which will be released today at 19:00 GMT. Yet, considering that market pricing already implies a small probability for a Fed rate cut this year, it’s difficult to envision any major weakness in the dollar even if the minutes are on the dovish side; that much is expected already.

On the trade front, reports suggest the US is trying to obtain a guarantee from China that it will keep the yuan stable – or in other words that it won’t devalue it any more – as part of the trade negotiations. The news sent the yuan surging, consequently weighing on the dollar.

Sterling skyrockets, even without a clear trigger

The British pound was the star performer on Tuesday, with Cable jumping by more than one big figure to trade back above the $1.30 handle, without any material news. Sure, there were reports that some pro-remain Tory MPs may follow in the footsteps of their Labour colleagues and quit their party, and that May could soon lose the support of hardline Tory Brexiteers. Yet, spinning these into a positive for sterling truly requires an exercise in mental gymnastics, implying that the surge may have been more technical in nature, driven mainly by flows as opposed to news.

PM May will head to Brussels today to meet European Commission chief Juncker, in an attempt to secure concessions on the Irish backstop. Even if the EU grants any, they will most likely not be legally-binding, and so are unlikely to satisfy UK lawmakers. Hence, uncertainty over what happens next remains heightened, with the only ray of hope – for the pound – being that Parliament could force May to seek an extension of Article 50, when lawmakers vote again next week.

Stocks steady, but gold sails past 10-month highs

US stock markets ended the session practically flat yesterday, with the S&P 500 (+0.15%) and the Dow Jones (+0.03%) struggling to make headway. In contrast, gold prices soared to fresh 10-month highs, with bullion now trading at $1343/ounce. While a weaker US currency definitely contributed, it wasn’t the principal catalyst for this rally, as gold had already broken higher while the dollar index was still safely in the green.

It’s especially interesting that the correlation between gold and the dollar has diminished lately, which implies that a flight to safety is quietly going on, as movements in the US currency no longer explain moves in gold. Overall, the outlook for gold is clearly positive, though for buyers to challenge and pierce above the elusive $1365 area, some more ‘fuel’ may be needed, such as an escalation in market growth concerns or a meaningful retreat in the dollar, or both.

AUDUSD is extending last week’s rebound above the 0.71 mark but with technical indicators showing little strength at the moment, it is still questionable whether the pair has the dynamics to fully recover February’s losses in the short term. The MACD is rising steadily above its red signal line and is in negative territory, and the RSI seems to be slowing positive momentum above its 50 neutral mark, while the red Tenkan-sen line is flat below the blue Kijun-sen line.

In case bullish forces persist, nearby resistance could be found around the 0.7200 round level, while slightly higher a more exciting battle could start between the 200-day moving average currently at 0.7266 and the previous peak of 0.7294. Should the bulls win, the rally may pick up steam towards the 0.7360 barrier, while a close above 0.7440, which is the 50% Fibonacci of the long downleg from 0.8135 to 0.6745, could be a sign of a broader bullish trend.

On the flipside, a move northward is expected to hit the area around the 23.6% Fibonacci of 0.7074. Another leg lower, could open the door for the 0.70 psychological level which if significantly broken, could eventually increase selling orders towards the 0.69 and 0.68 levels before the 0.6745 bottom comes into focus.

In the medium-term, AUDUSD is stable in a neutral mode within the 0.70-0.7392 area. The flattening 50-day MA suggests that the sideway run may not change any time soon.

Pivot (invalidation): 55.70

Our preference Long positions above 55.70 with targets at 56.90 & 57.60 in extension.

Alternative scenario Below 55.70 look for further downside with 55.35 & 55.05 as targets.

Comment The RSI is bullish and calls for further upside.

Pivot (invalidation): 15.9500

Our preference Long positions above 15.9500 with targets at 16.1100 & 16.1800 in extension.

Alternative scenario Below 15.9500 look for further downside with 15.8400 & 15.7200 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 1339.00

Our preference Long positions above 1339.00 with targets at 1349.00 & 1354.00 in extension.

Alternative scenario Below 1339.00 look for further downside with 1335.00 & 1328.00 as targets.

Comment The RSI is bullish and calls for further upside.

Pivot (invalidation): 2763.00

Our preference Long positions above 2763.00 with targets at 2795.00 & 2804.50 in extension.

Alternative scenario Below 2763.00 look for further downside with 2750.00 & 2737.00 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 11372.00

Our preference Short positions below 11372.00 with targets at 11213.00 & 11150.00 in extension.

Alternative scenario Above 11372.00 look for further upside with 11429.00 & 11490.00 as targets.

Comment The index currently faces a challenging resistance area at 11372.00.

Pivot (invalidation): 5.3000

Our preference Short positions below 5.3000 with targets at 5.2700 & 5.2550 in extension.

Alternative scenario Above 5.3000 look for further upside with 5.3210 & 5.3330 as targets.

Comment A break below 5.2700 would trigger a drop towards 5.2550.

Pivot (invalidation): 0.7145

Our preference Long positions above 0.7145 with targets at 0.7190 & 0.7210 in extension.

Alternative scenario Below 0.7145 look for further downside with 0.7125 & 0.7100 as targets.

Comment Even though a continuation of the consolidation cannot be ruled out, its extent should be limited.

Pivot (invalidation): 1.3220

Our preference Short positions below 1.3220 with targets at 1.3170 & 1.3150 in extension.

Alternative scenario Above 1.3220 look for further upside with 1.3240 & 1.3260 as targets.

Comment As Long as 1.3220 is resistance, look for choppy price action with a bearish bias.