Fed’s interest rate decision to rock the markets

The market focus now turns to the Fed’s interest rate decision in the late American session today. The bank is expected to remain on hold, keeping rates at the 5.25-5.50% range. Currently, Fed Fund Futures (FFF) imply a probability of 99% for such a scenario to materialise, rendering the interest rate decision largely as an open and shut case. Hence, we may see the market attention turning to the accompanying statement, the new dot plot and Fed Chairman Powell’s press conference, half an hour later. FFF also imply that the market, currently, expects the bank to start cutting rates in June and deliver 3 rate cuts in total.

Should we break down the three prementioned remaining elements, we note that should the accompanying statement and Fed Chairman Powell’s press conference, be characterised by a hawkish tone, contradicting market expectations, we may see the USD getting some support, while should the bank allow for some innuendos that rate cuts are nearing, we may see USD weakening.

On the other hand, should the new dot plot reaffirm the market’s expectations for a total of three rate cuts in the year, we may see USD price weakening, while should the dot plot imply fewer rate cuts, possibly two, we may see the USD getting asymmetric support. Yet the release may have ripple effects beyond the FX market also on gold’s price and US stock markets. Any unexpected hawkishness may weigh on US stock markets as well as gold’s price and vice versa.

In the FX market, we note the rise of USD/JPY as the pair broke the 150.85 (S1) resistance line, now turned to support and is currently aiming for the more than thirty-year high of 152.00 (R1) resistance line. We tend to maintain a bullish outlook for the pair as long as the upward trendline guiding the pair remains intact. We also note that the RSI indicator remains far higher than the reading of 70, which highlights the bullish sentiment of the market for the pair, yet at the same time may imply that the pair is at overbought levels and may be ripe for a correction lower.

We also receive similar signals by the fact that the price action is flirting with the upper Bollinger band. Hence alongside our bullish outlook, we also issue a warning for a possible correction lower of the pair that may shift the upward trendline to the right. Should the bulls maintain control as expected, we may see the pair breaking the 152.00 (R1) resistance line and set the next possible target for the bulls at the 153.80 (R2) resistance level.

Should the bears say enough is enough and take over, we may see the pair breaking the prementioned upward trendline clearly, signaling an interruption of the upward movement, breaking the 150.85 (S1) support line and taking aim of the 149.55 (S2) support level.

Nasdaq on the other hand, seems to have stabilized its price-action in the corridor set by the 14685 (R1) and the 17120 (S1) levels. Given also that the RSI indicator remains near the reading of 50, implying a rather indecisive market we tend to maintain our bias for the sideways motion to be maintained. For a bullish outlook we would require the index to break the 17685 (R1) resistance line, with the next possible target for the bulls being the 18300 (R2) resistance level. Should the bears take over, we may see the index breaking the 17120 (S1) support line aiming for the 16570 (S2) support base.       

Other highlights for the day:

Today in the European session we note the release of Germany’s PPI rates for February, and we highlight UK’s CPI and PPI rates for the same month, while on the monetary front, we note CNB’s interest rate decision while ECB President Christine Lagarde speaks. In the American session, we get EIA’s weekly Crude oil inventories figure, Eurozone’s preliminary Consumer confidence for March and later on New Zealand’s GDP rate for Q4 and on the monetary front, besides the Fed’s interest rate decision we also note the release from Canada’s BoC March meeting minutes. On Thursday’s Asian session, we get Japan’s trade data for February and we highlight Australia’s employment data for February.

USD/JPY H4 Chart

Support: 150.85 (S1), 149.55 (S2), 148.05 (S3)

Resistance: 152.00 (R1), 153.80 (R2), 155.50 (R3)

US 100 Cash Daily Chart

Support: 17120 (S1), 16570 (S2), 15740 (S3)

Resistance: 17685 (R1), 18300 (R2), 19000 (R3)

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