All focus on the Fed’s interest rate decision

Overall, the market seems to be increasingly shifting its interest towards the Fed meeting in today’s late American session. US stockmarkets yesterday had slight gains the USD was relatively stable near a 20-year high, and gold’s price took advantage from the recess of volatility to edge higher while US yields were on the rise with the 10-year bond yield reaching almost 3% underscoring the market’s hawkish expectations.  It should be noted that the Fed is expected to deliver a 50 basis points (double) rate hike, thus the interest rate to reach 0.75-1.00 from 0.25-0.50%. Currently, Fed Fund Futures imply that the market has priced in such a scenario by 92.8% to materialise. It should also be noted that the market has also priced in further rate hikes down the line, with the interest rate reaching 2.75-3.00% by year’s end.

Just to put the market’s expectations into perspective here, note that for the market’s current expectations to be realised, and given that besides tomorrow’s meeting  there are only 5 meetings left that would mean that the Fed would have to deliver another four 50 basis points rate hikes and a 25-basis points rate hike and all of that until year’s end.  So, for the USD to get some substantial support the bank may have to deliver more than just a double rate hike. If the Fed actually raises the interest rate by 50-basis points as expected, it may have to maintain an intense hawkish tone in its accompanying statement foreshadowing further rate hikes to come highlighting the tightening of its monetary policy for the USD to get some substantial support.

Another scenario that could support the USD yet seems remote, would be for the bank to proceed with a 75-points rate hike in tomorrow’s decision, which would cause the USD to fly. Anything less than a double rate hike with a hawkish tone in the accompanying statement could cause the USD to weaken given the hawkishness of the market’s expectations. On the other hand, the release is expected to have affect also US stockmarkets, as well as price of gold. Also note that Fed Chairman Jerome Powell’s press conference later on is expected to maintain the volatility in the markets and should be closely watched.

The USD Index maintained a sideways motion between the 102.90 (S1) support line and the 103.85 (R1) resistance line. Please note that the RSI indicator is above the reading of 50 implying some bullish tendencies and may drive the index higher ultimately. Overall though we tend to maintain the bias for a sideways motion for the time being yet we note that the Fed’s interest rate decision could alter the index’s direction either way.  Should the bulls take over we note as a first resistance line the 103.85 (R1) line and if broken we set our next resistance level at 104.70 (R2). On the other hand should the bears be in charge of the index’s direction, we may see it breaking the 102.90 (S1) line and aim for the 102.10 (S2) support level.

Dow Jones seems to have stabilised somewhat just above the 33100 (S1) support level. The RSI indicator seems to remain near yet below the reading of 50 and we highlight the release of the Fed’s interest rate decision as a key event for the index’s direction. Should a selling interest be expressed we may see the index breaking the 33100 (S1) support line and aim for the 32250 (S2) level. Should on the other hand the index find fresh buying orders along its path, we may see it aiming if not breaking the 34150 (R1) resistance line.

Today’s events and expectations

Today, in the European session we get Germany’s trade data for March, Eurozone’s final composite PMI figure for April and Eurozone’s retail sales for March. In the American session, we note the release of the US ADP National employment figure for April, Canada’s trade data for March, the US ISM nonmanufacturing PMI figure for April while oil traders may be more interested in the release of the EIA crude oil inventories figure. On Thursday’s Asian session we get Australia’s building approvals growth rate as well as Australia’s trade data, both being for March.

USD Index H4 Chart

Support: 102.90 (S1), 102.10 (S2), 101.25 (S3)

Resistance: 103.85 (R1), 104.75 (R2), 105.60 (R3)

US 30 Cash H4 Chart

Support: 33100 (S1), 32250 (S2), 31170 (S3)

Resistance: 34150 (R1), 35110 (R2), 35850 (R3)

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