Fed’s March meeting minutes in focus

Market uncertainty is high as US President Trump’s tariffs are kicking in including the massive 104% tariffs on Chinese products entering the US. The big question is now how long will the US tariffs last with the US President boasting that they are permanent, while at the same time, US officials highlight the possibility that “deals” could be made with various targeted countries. On the flip side, companies are considering leaving China, yet the Chinese Government seems decisive not to “bow” to what it sees as a US “blackmail”. We expect market uncertainty to be maintained if not heightened, and at the same time highlight the possibility of extreme market reactions to either side. It’s characteristic that US stockmarkets renewed their bearish tendencies yesterday, while oil prices sunk once again fully ignoring a drawdown in US oil inventories as reported by API, implying a rather tight US oil market and highlighting how the pessimistic outlook for oil demand is dominating the oil market.

As for US equities markets we note that the bearish tendencies have been renewed yesterday. S&P 500 ended the day in the reds and is currently testing the 4930 (S1) support line. We maintain our bearish outlook for the index as mentioned yesterday. Yet at the same time we also note that the index’s price action in tis dropped once again broke below the lower Bollinger Band and the RSI indicator remains below the reading of 30 implying a strong bearish market sentiment for the index but also the possibility that the index’s price action is at oversold levels and may be ripe for a correction higher. Should the bears maintain their dominance over the index’s price action, we may see S&P 500 breaking the 4930 (S1) support line and start aiming for the 4670 (S2) support level. A bullish outlook seems currently remote and for its adoption the index’s price action would have to break the 5155 (R1) resistance line and continue higher to break the 5345 (R2) and the 5520 (R3) resistance level.

On a monetary level, we note in the late American session the release of the Fed’s March meeting minutes. The market is currently pricing four more rate cuts until the end of the year starting in May, which is extensively dovish. Such expectations were further enhanced yesterday, as the tariffs are expected to increase the probability of a recession, or at least could slow down growth in the US economy. Yet given Fed Chairman Powell’s comments on Friday the bank seems to hesitate to proceed with extensive rate cuts as the new tariffs on US imports may have a considerable inflationary effect on the US economy. It should be noted that also the Fed’s independence comes under fire as US President Trump is calling for the bank to proceed with extensive rate cuts. Last but not least we also highlight the release of the US March CPI rates tomorrow, which could affect the market’s opinion on a macroeconomic level.

In the FX market EUR/USD rose yesterday surfacing again over the 1.0940 (S1) resistance line, now turned to support. Given that the price action has respected the upward trendline guiding the pair since the 28 of February we maintain our bullish outlook for now. For the bullish outlook to be verified, we would require the pair’s price action would have to form a higher peak than the last one, thus has to break the 1.1210 (R1) resistance level and start aiming for the 1.1480 (R2) resistance hurdle. For a bearish outlook to be adopted, we would require EUR/USD to break the prementioned upward trendline signalling an interruption of the upward movement and continue to break the 1.0940 (S1) line and aim for the 1.0730 (S2) support level.

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Today we note that BoJ Governor Kazuo Ueda, ECB Policymaker Knoot and Board Member Cipollone as well as Richmond Fed Board Governor Barkin are scheduled to speak. Oil traders may be more interested in the release of the weekly EIA crude oil inventories figure. In tomorrow’s Asian session, we note the release of Japan’s corporate goods prices for March as well as China’s inflation metrics for March.