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Is Fed’s Rate-Hike-Pause A Done Deal?

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U.S. inflations figures came in as expected, providing room for the Federal Reserve’s wait-and-see approach. There is a 90 percent probability that rates will be put on hold at today’s FOMC decision. Further expectations lean towards a 25bp rate hike in July. Since a rate-pause scenario this month is largely priced in, more focus will be on the monetary policy guidance and fresh economic projections to determine what comes next. If terminal rate projections and inflation estimates are revised higher, it would reignite hawkish concerns and thus, support the U.S. dollar.

The Fed rate decision alongside economic projections is due to be released today at 18:00 UTC, followed by the press conference 30 minutes later.

GBP/USD: The pair trended higher, heading towards 1.2650. As mentioned in Monday’s analysis, we will keep tabs on a bullish breakout above 1.2670.

EUR/USD: The euro swiftly rose above 1.08 but was unable to hold above that benchmark – at least for now. We expect increased volatility around the FOMC decision and watch out for price breaks either above 1.0835 or below 1.07.

 

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Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

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Fed Decision Day

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It’s Federal Reserve decision day and the central bank is expected to deliver a 25bp interest rate hike and then signal a pause in its aggressive hiking path. Inflation is expected to cool more meaningful in the months ahead which could allow for the Fed to stop raising rates. However, there is room for a surprise and since the market prematurely speculates on potential rate cuts toward the end of the year, any signs for further tightening would come as a surprise and strengthen the U.S. dollar.

Thus, sustained strong inflation and jobs data could add pressure on the Fed to continue hiking, leaving the greenback’s counterparts exposed to further downside.

The most likely scenario however is that if the Fed officially hits the pause button, the U.S. dollar is likely to weaken, as traders attempt to front-run the next moves, which in this case would be rate cuts. With other key central banks, such as the ECB, still seen hiking borrowing costs a few more times this year, monetary policy divergence is expected to play against the greenback.

The Fed decision is due at 18:00 UTC, followed by the Fed press conference 30 minutes later.

Sideways direction

EUR/USD: The euro recently traded within a sideways range between 1.11 and 1.09. If we see an upper breakout above 1.11, the next target is 1.12. Falling below 1.09 could see further losses towards 1.0750.

GBP/USD: If the pound stabilizes above 1.25, we could see a run for 1.2650. A sustained break below 1.24, however, could lead to a test of the lower support area at 1.23.

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

Monthly results 2023:

April 2023 (5 days trading only): +38 pips

March 2023: +408 pips

February 2023: +475 pips

January 2023: +123 pips

 

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Eventful Week Gives Hope For New Momentum

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After several weeks of lackluster momentum, market participants are now bracing for a heavy loaded week of event risk with not only three crucial Central Bank meetings on tap but also the U.S. nonfarm payrolls at the end of this week.

The first risk event will be Wednesday’s FOMC rate decision. The Federal Reserve is expected to slow the pace of tightening to 25 basis points. The problem is that the markets are ahead of themselves, appearing more dovish than the Fed. Rate cuts are already priced in looking two years out while inflation is still far above target. In other words, while the Fed may keep the focus on near-term tightening, the market is already speculating on an end of the tightening cycle instead of the possibility of keeping rates restrictive for some time. This sets the stage for disappointment rather than for confirmation of the speculation.

On Thursday, the Bank of England and European Central Bank rate decisions are due.

The BoE has hinted at yet another 50bp rate hike which is largely priced into GBP crosses. What could be bearish for the pound would be an additional vote split between 50bp and 25bp among BoE policy makers.

GBP/USD: The current bias is still bullish, provided the pair remains above 1.2250. A break below 1.2240 would possibly result in a quick sell-off towards 1.2170/1.21 and possibly even 1.20. On the top side, sterling bulls were still unable to push through the resistance zone at 1.2450 but this week’s fundamental drivers could provide a catalyst for a leg higher – or lower.

EUR/USD: The euro’s uptrend is still intact even though overbought conditions and the solid resistance around 1.09 raise the odds for a correction. If the ECB hints at a more aggressive approach in hiking rates to fight inflation while the Fed remains comfortable with slowing the pace of hikes, we could see a test of 1.10 and possibly even 1.11. On the downside, we keep tabs on the 1.0650-area as a potential support zone.

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Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

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Four Major Events

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Today, the Federal Reserve will announce its latest interest-rate decision. A 75-bp hike is considered a sure thing. Traders are rather looking for hints about plans to ease back from the Fed’s aggressive pace of hikes. Possible signals about a less-hawkish stance would be dollar-negative. However, given the hotter than expected September U.S. inflation report and the strong September nonfarm payrolls, the most likely scenario is continued aggressive policy tightening – at least until the end of 2022.

On Friday, the October U.S. jobs report will provide an important look at the health of the labor market.

On November 8, the U.S. mid-term elections could lead to a change in which party controls Congress. Stock bulls are hoping for a divided Congress, which has historically benefited equities.

On November 10, economists will be watching the consumer price index for signs of a further pullback in order to shape expectations for the Fed’s path. A lower reading could be dollar-negative on the back of increased risk appetite.

After an extended trading break, we have been back at the trading desk for three weeks now and have already been able to make a few profits. From 7 November 2022, we will also be offering our signals service again for all interested traders.

We wish you all good trades!

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Market Overreacted To Powell’s Comments

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It happened as expected: The Federal Reserve raised rates by 75bp and the market misinterpreted this month’s hike as a pivot towards a dovish monetary policy stance and thus sent the U.S. dollar tumbling. This is a classic market overreaction towards a potential monetary policy shift when the current guidance is already priced in. Caution is however warranted as we could be still far from the peak.

Fed Chair Jerome Powell said that another big increase is possible and projected rates to be at 3.8 percent in 2023, a projection that is above market expectations. Yet investors interpreted Powell’s comments that rate hikes will slow. The key phrase was that the pace of tightening would slow at some point but that didn’t flag a pivot to lower rates or even a pause, according to Fed watchers.

However, both euro and cable overshot following Powell’s comments. The best performer was the pound sterling that broke above the descending trendline and headed towards 1.22.

We believe that gains in the GBP/USD could be limited to 1.2250 as the pair entered overbought territory.

There were no breakouts in the EUR/USD which remains in its current trading range between 1.03 and 1.01.

 

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

Any and all liability of the author is excluded.

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Is The Fed Rate Hike Cycle Nearing Its Peak?

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Welcome to a new trading week and our last one before the summer holiday break.

Top even risk is Wednesday’s FOMC rate decision which where Fed Chairman Jerome Powell and his colleagues are expected to raise rates by another 75bp after raising rates by 75bp in June. Powell has said following the Fed’s last 75bp hike that it is an unusually large one, he does not expect rate hike moves of that size to be common. However, the market is now dealing with the debate of a 75bp or 100bp hike and the U.S. dollar’s reaction to it. According to economists, there is no appetite for a full-point increase at any time during this rate cycle.

From a seasonal perspective, the last week of July historically exhibits lower volatility and volume, which is why extraordinary large market moves might be missing.

Looking further ahead, a survey of 44 economists forecast the Fed will raise rates by another 25bp in early 2023, reaching a peak of 3.75 percent before pausing and starting to cut rates before the end of the year.

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Fed Decision: Is ‘Dovish Tightening’ A Done Deal?

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It’s decision day at the Federal Reserve. A quarter-point rate increase is widely expected, the first since 2018. The market’s focus will be on the Fed’s dot plot and if the dot plot projects more than six interest hikes this year, it would be a hawkish signal, resulting in a stronger U.S. dollar.

However, this decision is a tricky one for Fed Chair Jerome Powell since FOMC members have expressed divergent views especially against the background of uncertainties facing the global economy because of Russia’s invasion of Ukraine. Having mischaracterized inflation as “transitory” until November, the Fed would now have to signal an aggressive rate hike cycle that would have to start with an increase of at least 50bps today to regain some of its lost credibility. However, being an aggressive hawk is not an easy approach as it risks sending the U.S. economy into recession.

The other option, and possibly the more likely scenario today, is “dovish tightening”. A 25bps rate hike and language about maximum policy flexibility on further rate hikes and on the balance sheet.

Whatever the Fed will decide, traders brace for heightened volatility around the decision and press conference at 18:00/18:30 UTC.

EUR/USD – Potential bear-flag to signal further losses ahead?

We are bracing for another leg-down towards 1.07, provided that the euro remains below 1.1060 and breaks below 1.0920. Bulls, in the short-term, will watch for prices above 1.1020 in order to buy euros towards 1.1060 and possibly even 1.11, but be warned, sellers may take the opportunity to jump in at higher price levels.

Our trading ideas for today 16/3/22:

EUR/USD

Long @ 1.1010, Short @ 1.0940 (SL 25, TP 100)

 

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

Any and all liability of the author is excluded.

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Inflation Is The Biggest Risk

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The war in Ukraine enters its third week and the outlook for financial markets is seriously uncertain. Global geopolitical risk, a slowdown in growth, high inflation and central banks that will be forced to tighten add to concerns about the global economic recovery.

The biggest risk is inflation. The Federal Reserve is expected to lift interest rates by 25bps on Wednesday. The focus will however be on the Fed’s official forecast and the outlook beyond the six quarter-point rate hikes this year that are already priced in. The questions will rather be: How high could rates ultimately go and how quickly will officials move to get there. The Fed’s dot plot of rate projections will thus play a key role.

Apart from the Fed, the Bank of England is also widely expected to hike 25bps for a third straight meeting on Thursday.

What do we expect technically in both EUR/USD and GBP/USD pairs?

In the run-up to Wednesday’s FOMC decision we anticipate further USD strength with lower targets seen at 1.0730-1.07 in the EUR/USD and 1.2970-1.2950 in the GBP/USD.

GBP/USD: If 1.2950 holds, the cable may recover some losses towards 1.32 on a hawkish BoE.

EUR/USD: If the euro is unable to break above 1.1050, chances remain in favor of the bears with next lower targets seen at 1.07 and 1.0640.

 

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

 

We wish you good trades!

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Loss of Fed’s Credibility to Hurt The U.S. Dollar?

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A new trading week kicks off and top event risk will be the FOMC rate decision on Wednesday.

The Federal Reserve’s abrupt departure from being patient on inflation which was still considered ‘transitory’ just a few months ago to panicking on inflation with a current probability of four rate hikes in 2022 results in a loss of credibility. While a March rate hike is almost a done deal to control the ‘previous transitory’ price pressures, a majority of economists predicted the central bank will use its January meeting to deliver a 25 bp or even a surprise 50 bp rate hike which would be the largest since 2000. Speculation about five rate increases this year is also on the table.

What will the Fed’s rapid shift mean for the U.S. dollar?

As we could see, U.S. dollar bulls seemed to be largely unimpressed by the Fed’s hawkish turn with the greenback experiencing even a drop against other counterparts. In the face of the central bank’s losing credibility, we could imagine that the U.S. dollar is at risk of dropping despite the Fed’s accelerated rate hike path.

Technically, both EUR/USD and GBP/USD look oversold in daily time frames which could lead to short-term upward movements. However, bulls should take a cautious approach as risk trends can slip. Current resistances are seen at around 1.37 in the GBP/USD and at 1.1430 in the EUR/USD. Bear in mind that dollar bulls could pile in ahead of the FOMC announcement but might take any potential profits quickly.

Apart of Wednesday’s FOMC decision we will have the 4Q U.S. GDP Thursday and the PCE deflator (the Fed’s favorite inflation indicator) Friday.

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We wish you good trades!

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Can Powell Meet The Market’s Hawkish Expectations?

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Today is the Federal Reserve’s rate decision day and market participants expect the Fed to unveil a quicker tapering of bond purchases that paves the way for interest rate hikes next year. We will remain cautious going into the FOMC announcement at 19:00 UTC tonight.

Expectations are very high and so is the risk for disappointment. The market currently expects the Fed to raise rates next year three times with a 61.5 percent probability of at least three hikes. There is even a 31.8 percent probability of four rate hikes in 2022.

The broad-based U.S. dollar strength remained in-play until today as the market discounted the Fed’s hawkish approach but can the Fed live up to the market’s high expectations? Maybe not as the omicron variant created a bit of concern for economic trends and should the Fed share this concern at today’s press conference, investors could give up on dollar long positions. In terms of rate hike expectations, traders will want to see at least two rate hikes next year via the dot plot matrix to remain dollar bullish.

Anything is possible today and traders are well advised to maintain a cautious approach going into today’s policy decision.

Breakout-Mode

EUR/USD: Below 1.1220, euro-bears could send the pair for another test of 1.12/1.1185. If 1.1180 breaks, bearish momentum could accelerate toward 1.11 and maybe even 1.10 but for such a strong dollar move we would need a hawkish shift from the Fed. In case of a disappointment, we could see a short-squeeze with a test of the resistance zones at 1.1320-40 and 1.14.

GBP/USD: Holding above 1.3120 and 1.31 could pave the way for a reversal toward 1.35 and maybe even 1.37. The Bank of England is expected to hike next and if the dollar’s strength fades, sterling bulls may take the opportunity to push the cable higher.

 

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2021 MaiMarFX.

www.maimar.co

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