the daily chartist

Dudley Aftermath 03.02.2016

published 5 years ago

Some may say that yesterday we've finally saw some liquidity, action and exciting times! Well not when you woke up with a plan in the sunny morning, that overall dollar strength will prevail for the day and put some shorts on the euro and longs on usd/jpy and as everything goes to plan - boom! Just a 5 - minute speech can destroy everything you had planed. 

 As in the case of yesterday's dollar massacre, I would call it - Black Wednesday for the greenbuck, we saw market excitement to the extremes, something we have not seen in a long time. Overall what happened: Sentiment and fundamentals suggested that usd/jpy should go up after the NIRP introduction from BoJ and the euro to go down supported by overall buck strength and incoming March printing money procedures from ECB. On the daily chart eur/usd was stuck in a tight range and was just a matter of time when it will bust and the majority thought it will brake downwards and start a new bearish trend. Yesterday Kuroda had another speech where some expected for another rate cut to the negative side and play longs against the yen. Though that didn't happened and overall talks were the usual -  "Do whatever we can" rhetoric and etc. Credibility to the BoJ wasn't shattered yet, but was going shaky non-the-less as the yen continued to appreciate after the NIRP introduction. A day after the BoJ operation, China fears swooped back in and boosted the yen. 

 ADP came in positive - not enough to boost the dollar with rate hike bets for the summer. ISM PMI came in negative, well these two didn't had any importance actually as the President of the Reserve Bank of New York and vice-chairman of the Federal Open Market Committee, Dudley, had a speech saying:

  • Continued tightening on conditions would weigh on the FED
  • Warned that additional strength of the U.S. dollar could have "significant consequences" for the U.S. economy

 These two played their roll as extreme dovish sentiment, dollar position clearing and bulls rushing in, turned the sentiment just in seconds, overshadowing ADP and ISM. The euro started to climb rapidly for 68 pips, reaching the top sell zone levels from the range at 1.09473 and 1.09750 and started to fade a bit, as this level was important if the bulls wanted to be inspired for another rally - it had to be breached. Movement was seen as weak, quickly fading with no real support to its back. Thing is that the candle on the first attack made a new high from the previous one, which failed to do that on its previous high and price dropped down. Last high was at 1.09669 and even closed with a reversal pin-bar. The high yesterday was at 1.09755 and the candle closed bullish. Thus the next candle broke trough the range with a 126 pips movement. After that another 82 pips candle was charted. Then a slight correction occured.

 USD/JPY situation was even more dramatic. On the 4H chart we had four red figures of hard selling, thus erasing 50% of the NIRP movement - this is where credibility to the BoJ was almost destroyed and then (again on 4H chart) - 183 total pips movement, erasing NIRP movement completely, destroying credibility to the BoJ as well. Price reached January levels and made a slight correction. Pound rallied sharply climbing back towards the 1.45520 area and 1.4600, Gold made a significant gain passing 1130$/oz and 1140$/oz, Oil rallied too after Inventories report and other than that I guess from the overall dollar weakness towards 33.60. S&P500 at first plunged, but then liked the dollar weakness and went up from its low at 1870.6 towards 1917.6 and closed at 1913.4.

 In a day like this you just have to overcome it. I know most of my readers (who are trading with the greenbuck, and were trading yesterday) probably didn't woke up this morning in a bright mood. A full month of work can be erased in a single day, even in seconds. Don't give up, stay in the game, gain wisdom and experience.