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US dollar pushing higher following last night’s FOMC minutes release

The market had been expecting the faster tapering from the FOMC as they have been signaling this for a couple of months now. After last night’s revelations traders are pricing in for an accelerated timetable for raising rates. The market is currently risk-off but the yen moves don’t look like they have legs to carry on much longer.

Market Brief

After the FOMC meeting minutes were released yesterday, the dollar jumped off the support level of $95.90 and is now trading at $96.36. There are more discussions of rate hikes and this is translating into a more hawkish Fed. That's good news for the dollar, but yesterday's sell-off in risky assets like the Nasdaq shows how things might pan out if the Fed follows through with their rhetoric. If the hawkish tone remains, we could see the US dollar index above the $96.50 very soon.

CME's Fed watch tool reveals that some probability of a rate hike at the next meeting is starting to be priced in, with a greater than 60% expectation of an increase in March when the Fed will have also completed the taper schedule.

In November, factory orders in Germany jumped 3.7% mom, rebounding from a 5.8% drop in October and beating estimates of a 2.1% growth. There was a significant increase in orders for other transport equipment such as aircraft, ships, trains, and automobiles. These new orders are a welcome sign of economic activity and over the last 18-months, the problem hasn't been the demand, it has been the supply. An analysis from the New York Fed, within a newly created index of global supply chain pressures, shows that there is a greater likelihood of a peak being reached in supply-chain pressures. If this is the peak in disruptions and the supply chains globally start moving back to a normal level of business, the demand will be met, and prices could start to come down. But important for Germany, the orders will turn into sales and economic growth.

At the London open the forex heatmap is indicating a risk-off start to the day, though the Swiss franc isn’t fully onboard yet. The Australian dollar is clearly the weakest of the commodity pairs with the bullish yen flows strongest.

The AUDJPY is one of the best indicators for risk market direction and currently it is reflecting the mood post the FOMC meeting minutes release. However, the ActivTrader sentiment indicator is at an extreme bearish reading with 87% of traders on the platform shorting the currency pair. This is a signal to me that we should be looking to buy the dips.

On the daily chart of the AUDJPY the next support level I will be monitoring for a possible buy is 82.50 and below that 81.538. It could be that the retail traders are right this time for now and if so I’ll be looking to see what sort of price action we get at those two support levels.

The USDJPY is testing the old resistance level of 115.50 for the second time and if it were to hold again this would be a good sign of much higher prices to come. While we are within the range of yesterday and assuming we don’t break yesterday’s lows I am looking for opportunities around 115.80.

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