US Dollar Goes Haywire on Fed-Speak Mis-Fire: Now What?

US DOLLAR, S&P 500, GOLD TALKING POINTS:

• Markets got chaotic in the latter-portion of yesterday’s US session as a comment from John Williams was inferred to mean that the Fed is looking to take aggressive steps at their next policy meeting.
• That comment was later walked-back as mis-communication, and many of those market themes posed some element of pullback.
• DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollaror the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

READY FOR SOME FED… IN TWO WEEKS

The latter portion of yesterday’s US session was interesting. In a speech from the NY Fed President, John Williams said the bank should ‘act quickly.’ And with global markets focusing-in on the Fed for the FOMC rate decision in two weeks, that comment was inferred to mean that the bank is currently looking to get very dovish very quickly in the effort of addressing the current growth slowdown. This off-hand comment punched the US Dollar lower and Gold prices caught a firm bid to drive up to fresh six-year-highs. The intra-day losses that had shown in US equity bourses were quickly erased ahead of the close as it appeared as if the world’s largest Central Bank was ready to start a new trend of softening that could be here for a little while; running in stark contrast to the one rate cut that the bank had forecast at their June rate decision.

In rates markets, there was a near immediate pricing-in of 50 basis points of softening at the July rate decision. Ahead of that comment, odds were showing at around 38%. 

Later in the evening, however, the NY Fed came out with a correction. The bank said that the comment from Mr. Williams was in reference to longer-term economic research, and that he didn’t necessarily mean to remark on near-term dynamics. And just as quickly as the US Dollar had dropped previously, strength showed back up and many of the above-mentioned themes pulled back

On the below hourly chart of the S&P 500, the bounce coming in off of those comments from John Williams is very clear, as it erased the entirety of the early-day losses in the index with resistance coming-in off of the 14.4% Fibonacci retracement of the recent bullish move.

S&P 500 HOURLY PRICE CHART

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