According to the FOMC Minutes several members thought that a 0.5% rate hike would be appropriate. The minutes also showed the central bank was prepared to taper by $60B of treasuries and $35B of mortgage back securities per month. The FOMC members were worried about risks tied to the Russian-Ukraine war which prevented the Fed from hiking more than 0.25% in March. Equity market traders were confused by Fed’s messaging as the DJIA chopped sideways in yesterday’s trading. The same can be said about EURUSD, gold and silver as there was no real direction in these markets following the release of the minutes. Commodity currencies are weak but this relates more to the recent risk-off sentiment prevailing in the markets than the expectations of the Fed’s future policy. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The way I have structured my analysis is that I will post trade ideas when I see them but when now apparent trade ideas stand out at the time of writing the analysis I will provide you with analysis and key price levels on markets that are worth putting on a watchlist. As soon as something catches my eye I will update you on our Telegram channel.
I tend to include Target 1 (T1) and Target 2 (T2) levels (or ranges) so that you have an idea of how far the market would probably move if price action supports my trade ideas. The target one is a high probability target while the next target is further away and therefore there’s a greater risk that the market doesn’t reach the level. While I don’t provide investment advice my analysis helps you in your own market analysis and then you can decide how to trade the markets. If you need help more help with your trading join me at the next live analysis webinar here: www.TIOmarkets.com/webinars I will show you live how to analyse the markets and identify trading opportunities.
GBPNZD hit my Target 1 as the market breaks out of a bullish wedge formation. I posted This trade idea on our Telegram channel yesterday. I pointed out how GBPNZD is deeply oversold after the pair has declined for over 9 weeks. While this on its own never means that a market is a buy, such conditions could lead to sharp reversals. The pair broke out of the wedge and my T1 at 1.8977 was hit. The lower probability target is at 1.9058 but if the risk-off mentality prevails (investors keep selling stocks and commodity currencies) we should see further up moves in this market. A retracement to the wedge top would be okay if there’s buying coming in around the top and a brisk rally higher from there. Alternatively, the market moves back inside the wedge which could lead to consolidation or even further weakness. Then we’d need to re-evaluate the general market sentiment and the technical picture in GBPNZD.
EURCHF rallied to the 1.0194 resistance as expected and is now reacting lower from the level. So all is looking good and my earlier analysis proved to be very valid. If the market fails to maintain price advances above the level it’s likely that the market moves to my T1 at 1.0067. My lower probability target (T2) for EURCHF is at 0.9980. Alternative scenario: EURCHF rally above the 1.0194 level is sustained and the market moves to 1.0280.
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BTCUSD dropped down to 43400 as expected after it broke the 44240 support. The market has now created a bearish triangle formation and broken out of it to the downside. This suggests further downside but a rally back to either 43400 or perhaps even to 45100 could still take place first. Below 44300 my T1 for this market is 41700 and T2 39500. Alternative scenario: Bitcoin rallies above 45100 and moves to 46800.
Macro Drivers for the USD As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Several FOMC members support 0.5% rate hike in May. The Fed is prepared to taper by $60B of treasuries and $35B of mortgage back securities per month.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March non-farm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The annual headline inflation reading for January came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- USD – Unemployment Claims
- USD – FOMC Member Bullard Speaks
- USD – Treasury Sec Yellen Speaks
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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