FXCM's US30 CFD climbed 2% yesterday. This appreciation moved the index from its weak zone, between the lower blue and red bands, into its neutral region, between the blue bands (green square). On a relative basis, this is a movement of strength.
The Bollinger bands are also squeezing closer together, and the Bollinger Width (bottom indicator) has dropped below 0.05 (blue dashed line). Bollinger's theory suggests that narrowing the bands indicates lower volatility and is the proverbial calm before the storm. I.e. an expansion in volatility is expected. However, the idea has little to say about the direction of the increase.
Perhaps the relative strength, as indicated above, is suggestive of directional bias. However, it comes before essential market news. The CPI will be released today at 1:30 pm GMT, with consensus at 7.3% YoY - lower than last month's 7.7% YoY. Moderation may imply a more doveish Fed policy, which will be a tailwind for stocks. However, a surprise to the upside could mean a more aggressive approach, particularly at the terminal rate level - a headwind for the stock market.
Another data point to keep in mind is the Fed hike on Wednesday and the Fed Chair's press conference. His tone will be all-important and market-moving, with a more hawkish delivery pushing against the US30, despite yesterday's gains.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.