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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.

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Will The U.S. Dollar Retreat On A 75bp Rate Hike?

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It’s the Federal Reserve’s decision day and traders brace for a 75bp rate increase. The market’s key question is whether the Fed is nearing a projected 3.4 percent rate peak around year-end before Fed policy makers can start easing again to tackle the risk of recession. We bear however in mind that the market is often ahead of itself which is why talking about easing monetary policy could be premature at this point.

Nonetheless, the growing risk of a recession may force Fed policy makers to deliver smaller rate increases towards the end of this year. A shift in the Fed’s forward guidance may produce headwinds for the U.S. dollar in the coming months. So, we may see the greenback struggling to hold onto its gains even when the Fed hikes as expected.

In other words, a 75bp rate hike may not be a bullish catalyst for the dollar if additional rate hikes this year are not signaled. And the chance of a 100bp rate hike is at only 13 percent.

Given the summer lull we do not expect market movements to be extraordinarily large.

 

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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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Steht der Zinserhöhungszyklus der Fed vor seinem Höhepunkt?

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Willkommen zu einer neuen Handelswoche und unserer letzten vor der Sommerpause.

Das meistbeachtete Risikoevent ist die FOMC-Zinsentscheidung am Mittwoch, bei der erwartet wird, dass der Fed-Vorsitzende Jerome Powell und seine Kollegen die Zinssätze um weitere 75 Basispunkte anheben werden, nachdem sie sie bereits im Juni um 75 Basispunkte erhöht hatten. Powell sagte nach der letzten Zinserhöhung der Fed um 75 Basispunkte, dass es sich um eine ungewöhnlich große Anhebung handele und er nicht erwarte, dass Zinserhöhungen in dieser Größenordnung üblich seien. Der Markt befasst sich nun jedoch mit der Debatte über eine Anhebung um 75 oder 100 Basispunkte und der Reaktion des US-Dollars darauf. Nach Ansicht von Wirtschaftsexperten besteht zu keinem Zeitpunkt in diesem Zinszyklus Appetit auf eine Anhebung um einen ganzen Punkt.

Aus saisonaler Sicht sind in der letzten Juliwoche die Volatilität und das Volumen traditionell geringer, weshalb außergewöhnliche große Marktbewegungen diese Woche ausbleiben könnten.

Mit Blick auf die Zukunft prognostiziert eine Umfrage unter 44 Ökonomen, dass die Fed die Zinsen Anfang 2023 um weitere 25 Basispunkte anheben und einen Höchststand von 3,75 % erreichen wird, bevor sie eine Pause einlegt und vor Ende des Jahres mit Zinssenkungen beginnt.

Wir wünschen gute Trades!

 

Der Inhalt des Beitrags spiegelt die persönliche Meinung des Autors wider. Dieser übernimmt für die Richtigkeit und Vollständigkeit keine Verantwortung und schließt jegliche Regressansprüche aus. Dieser Beitrag stellt keine Kauf- oder Verkaufsempfehlung dar.

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Shifting Era – Things Just Won’t Be The Same

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Things just won’t be the same – This could be the conclusion of the European Central Bank annual forum in Sintra, Portugal. ECB President Christine Lagarde said that she doesn’t think “that we are going to go back to that environment of low inflation.” Federal Reserve Chair Jerome Powell explained how forces including globalization, aging demographics, low productivity and technological developments are no longer keeping prices in check. “We’re learning to deal with it” Powell said.

Lagarde reckoned the shifting era will herald yet more upheaval and “will probably change continuously towards a system that we are not certain about”.

“We’ve lived in that world where inflation was not a problem,” Powell said. “I think we understand better how little we understand about inflation.” These are the words of a central bank head.

In other words, and in the way we see it, this could mean for the Western world that we will learn to deal with surging consumer prices, threats to economic growth and the possibility of further energy disruptions.

EUR/USD: The pair headed south towards 1.04. Focus shifts back to a potential bearish break of 1.0340. Next targets are 1.02 and 1.00. A current resistance remains intact at around 1.06.

GBP/USD: Below 1.24, bears are in control with the focus turning to a potential test of 1.19.

DAX: If the index remains below 13300, we expect a fall towards 12700.

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 2022 MaiMarFX.

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Is A Fed 100bp Rate Hike In The Cards?

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It’s Federal Reserve decision day and anything from a 50bp to a 100bp in the federal funds rate is forecast. The Fed is facing the highest U.S. inflation in four decades which is why some market participants suggest that a full-percentage hike is on the table to show the Fed’s commitment in the inflation fight. However, chances of such a big move are only at 10 percent. The baseline scenario is a 50bp increase at today’s meeting.

The FOMC committee will release a statement and updated economic estimates at 18:00 UTC and Fed Chair Jerome Powell will hold a press conference 30 minutes later.

How will the U.S. dollar react?

In case of a well-priced-in 50bp rate hike, the dollar could even fall on disappointment. In case of a 75bp rate hike, the dollar will further strengthen. And in case of a 100bp hike, it will be a very bullish scenario for the greenback but chances of such a hike are small.

Furthermore, the focus will be on the Fed’s dot-plot, growth, inflation and jobs forecasts. Particular attention will also be paid to Powell’s press conference.

We wish you good trades for today!

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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.

Copyright © All Rights Reserved 2022 MaiMarFX.

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Fed Entscheid: Ist eine ‚lockere Straffung‘ ausgemachte Sache?

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Es ist Entscheidungstag bei der Federal Reserve. Eine Zinserhöhung um 25 Basispunkte wird allgemein erwartet, die erste seit 2018. Marktakteure werden ihren Fokus auf den Dot-Plot-Zinsprojektionen der Fed haben, und wenn das Dot-Plot mehr als sechs Zinserhöhungen in diesem Jahr projiziert, wäre dies ein hawkisches Signal, das zu einem stärkeren U.S. Dollar führen würde.

Allerdings könnte diese Entscheidung für den Fed-Vorsitzenden Jerome Powell knifflig werden, da die FOMC-Mitglieder zuletzt unterschiedliche Ansichten geäußert haben, insbesondere vor dem Hintergrund der Unsicherheiten für die Weltwirtschaft ausgehend vom Krieg in der Ukraine. Nachdem die Fed die Inflation noch bis November fälschlicherweise als „vorübergehend“ bezeichnet hatte, müsste sie nun eigentlich einen aggressiven Zinserhöhungszyklus signalisieren, der heute mit einer Erhöhung von mindestens 50 Basispunkten beginnen müsste, um etwas von ihrer verlorenen Glaubwürdigkeit zurückzugewinnen. Ein aggressiver Falke zu sein, ist jedoch kein einfacher Ansatz, da dieser die U.S. Wirtschaft in eine Rezession treiben könnte.

Die andere Option, und das heute möglicherweise wahrscheinlichere Szenario, ist eine „lockere Straffung“.  Das bedeutet eine Zinserhöhung um 25 Basispunkte und eine Rhetorik über maximale politische Flexibilität bei weiteren Zinserhöhungen und in der Bilanz.

Was auch immer die Fed entscheiden wird, Händler machen sich im Zusammenhang mit der Entscheidung und der Pressekonferenz um 19:00/19:30 UTC auf erhöhte Volatilität gefasst.

EUR/USD – Potenzielle Bärenflagge die weitere bevorstehende Verluste ankündigt?

Wir bereiten uns auf einen weiteren Kursrückgang in Richtung von 1.07 vor, vorausgesetzt, dass der Euro unter 1.1060 bleibt und unter 1.0920 ausbricht. Bullen werden kurzfristig nach Preisen über 1.1020 Ausschau halten, um Euros in Richtung 1.1060 und möglicherweise sogar 1.11 zu kaufen, aber Vorsicht, Verkäufer könnten die Gelegenheit nutzen um erneut bei höheren Preisniveaus einzusteigen.

Unsere kurzfristigen Handelsideen für heute 16/3/22 im EUR/USD:

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

Wir wünschen gute Trades!

Der Inhalt des Beitrags spiegelt die persönliche Meinung des Autors wider. Dieser übernimmt für die Richtigkeit und Vollständigkeit keine Verantwortung und schließt jegliche Regressansprüche aus. Dieser Beitrag stellt keine Kauf- oder Verkaufsempfehlung dar.

Copyright © 2022 MaiMarFX.

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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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Markets Returned to Normal After Hawkish Powell

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We saw a strong market reaction with a broad-based sell-off on Tuesday after Federal Reserve Chair Jerome Powell signaled his appetite for faster tapering of the Fed’s stimulus, speaking unexpectedly in a more hawkish tone. He warned that high inflation could justify ending asset purchases sooner than planned. On top of that, bearish momentum accelerated amidst anxiety around the coronavirus.  Stocks and counterparts of the greenback fell sharply following Powell’s testimony.

However, markets returned to normal following the hawkish shift while EUR/USD and GBP/USD finally ended yesterday’s trading day virtually unchanged.

EUR/USD: We still see some room for a bullish extension toward 1.1430, provided that the euro is able to hold above 1.1250.

GBP/USD: The cable plunged to a low of 1.3194 before stabilizing above 1.3280. We now see a next higher target at 1.3450. Falling again below 1.3240 we will turn our focus to a lower price target at 1.3150.

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