Fed’s interest rate decision to rock the markets

Today we highlight the release of the Fed’s interest rate decision The market’s expectations as expressed by Fed Fund Futures are for the bank to remain on hold in the meeting today and it’s characteristic that the market has almost fully priced in such a scenario to materialise. The market also seems to expect the bank to proceed with a rate cut in May or June meeting and that rate cut, with another rate cut possible in December. We expect the bank to remain on hold and possibly intensify its hawkishness in its accompanying statement and Fed Chairman Powell’s press conference about half an hour later. Should that be the case it could verify if not enhance the market’s expectations for the bank remaining on hold for a prolonged period, thus supporting the USD and weighing on US stock markets. On the flip side should the Fed’s decision be characterised by a less-than-expected hawkish tone, the release may weigh on the USD and support US stock markets as it would imply a faster easing of financial conditions in the US economy. Also for equity traders, we highlight the release of the earnings reports of Microsoft (MSFT), Meta Platforms (META), Tesla (TSLA), IBM (IBM) and Alibaba ADR (BABA) which could make headlines and create more volatility.

In the FX market USD/JPY hit a floor at the 154.65 (S1) support line yesterday. The pair seems to forming lower peaks and troughs allowing for a downward trendline to start to be forming. Also we note that the RSI indicator has dropped just below the reading of 50 which may imply a bearish predisposition of the market for the pair. Yet for a bearish outlook we would require the pair to break the 154.65 (S1) support line clearly with the next target for the bears being set at the 151.35 (S2) support level. Should the bulls take over, we may see the pair rising breaking the prementioned downward trendline in a first signal that the downward tendencies of the pair have ended and continue to break the 158.45 (R1) resistance line and start aiming for the 161.90 (R2) resistance level which marks a thirty eight year high.

Earlier in the American session today, BoC is also to release its interest rate decision. The bank is currently expected to cut rates in its meeting on Wednesday by 25 basis points, lowering them to 3% and CAD OIS imply a probability of 97% for such a scenario to materialise. The market also expects the bank to proceed with another rate cut by BoC probably in its April meeting. Should the bank cut rates as expected we may see the market’s attention turning towards BoC’s intentions and thus forward guidance. Should the bank’s accompanying statement be characterised by a dovish tone, practically verifying the market’s dovish intentions, we may see the Loonie losing some ground.

USD/CAD edged higher for a second day in a row yesterday, yet the price action remains well between the 1.4280 (S1) support line and the 1.4465 (R1) resistance level. We tend to maintain our bias for the sideways motion to continue as long as it respects the prementioned levels. We also note that RSI indicator has edged also a bit higher than the reading of 50, which may imply a slight bullish inclination on behalf of market participants for the pair. For a bullish outlook we would require the pair to break the 1.4465 (R1) resistance line and pave the way for the 1.4665 (R2) resistance level. Should the bears take over, we may see the pair’s price action breaking the 1.4280 (S1) support line and start aiming for the 1.4110 (S2) support barrier.

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Today in the European session, we note the release of Germany’s GfK Consumer sentiment for February and from Sweden we get the preliminary GDP rate for Q4 and Riksbank is to release its interest rate decision, while in the UK BoE’s Governor Bailey is scheduled to speak. In the American session, we get the weekly US EIA oil inventories figure and later on New Zealand’s December trade data. In the Asian session, we get from New Zealand’s January business outlook and Activity while RBA Ass. Governor Jones and BoJ Deputy Governor Himino are scheduled to speak.