Fed hikes, ECB to deliver

As was widely expected the Fed delivered a 25-basis points rate hike yesterday and in its the bank stated that “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook”. The market seems to have increased its expectations that the bank is to pause its rate hiking path onwards, yet we note that Fed Chairman Powell in his press conference later on that it is “not appropriate to cut rates”, which tended to contradict market expectations for possible rate cuts after the summer. For the time being, we are still not convinced of a reversal of the bank’s hawkishness, maybe some easing, yet we still see the bank as being ready to hike again should the cooling of inflationary pressures stop for any reason. Overall, we note that the release tended to weaken the USD, while at the same time, gold’s price benefitted from USD’s weakness as it reached near new all-time highs.

US stock markets ended their day lower after the rate hike of the bank, yet seem to be on the rise once again today in the premarket hours and attention turns also towards today’s earnings releases with Apple standing out. We note that Apple seems to have gathered a substantial amount of deposits in its high yielding savings account which it has produced in collaboration with Goldman Sachs, while it also has opened its first shop in India, creating considerable buzz in media. Back in the FX market, we highlight the release of the ECB’s interest rate decision today and the bank is widely expected to proceed with a 25-basis points rate hike, especially as the slowdown of the area’s HICP rate seems to have been halted in April. We expect the bank also to maintain a hawkish stance which could foreshadow more rate hikes to come and if actually so, we may see the EUR getting some support. Also another issue that tended to pass under the radar, may have been the drop of the Caixin manufacturing PMI figure of April below 50, which confirmed the contraction of economic activity for the giant Chinese manufacturing sector as noted on Saturday by the NBS manufacturing PMI figure for the same month.

EUR/USD maintained a clearcut upward movement yesterday aiming for the 1.1140 (R1) resistance line. We tend to maintain a bullish outlook for the pair given also that the RSI indicator is fast approaching the reading of 70, implying a bullish market sentiment. Please note that the price action is flirting with the upper Bollinger band which may slow down the bulls somewhat. Should the bulls maintain control over the pair, we may see it breaking the 1.1140 (R1) resistance line paving the way for the 1.1270 (R2) resistance level. Should the bears take over, we may see the pair reversing course breaking the 1.1000 (S1) support line thus opening the gates for the 1.0855 (S2) support level. XAU/USD rallied yesterday breaking the 2020 (S1) resistance line and continued higher to near record-high levels at 2078 (R2), yet corrected below the 2050 (R1) resistance line during today’s Asian session. We expect the bulls to continue to guide the precious metal’s price for now, yet we note that the RSI indicator despite still being above the reading of 70, is slowly correcting lower, implying that the bullish market sentiment may be easing. Should the bulls maintain control over gold’s price, we may see it breaking the 2050 (R1) resistance line and aim once again for the 2078 (R2) resistance level. Should the bears take over, we may see the bullion’s price reversing course breaking the 2020 (S1) support line and aim for the 1990 (S2) support level.

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Besides ECB’s interest rate decision in the late European session today we also note the release of the UK’s and Eurozone’s final composite and services PMI figures for April, while on the monetary front, we also note from Norway Norges banks’ interest rate decision. The bank is expected to hike rates by 25 basis points and depending on its forward guidance may provide some support for the NOK. In the American session, we note the release of the US weekly initial jobless claims figure and Canada’s trade data for March. During tomorrow’s Asian session, we note the release of the Caixin services PMI figure for April and on the monetary level, RBA’s statement on monetary policy.