Markets await FED Interest rate decision, to hike or not to hike

In today’s American session the star of the day will be the FED’s interest rate decision and the market’s expectations seem to have solidified. It’s characteristic that FFF are predicting an 80% probability of a hike by 25 basis points. There was a lot of speculation in regards to how the FED would react following the mini Banking crisis that plagued the US economy in the past few weeks. Most notable were SVB and Silvergate whose collapse spread contagion fears across numerous banks in Europe, such as Credit Suisse which led to its acquisition from its long-term rival UBS. The implications were potentially catastrophic, as many feared this could upend strategic plans laid by the ECB and FED in order to combat inflation. However, following the ECB’s decision to hike rates by 50 basis points and the swift action followed by SNB for Credit Suisse, the market anticipates that the FED could follow the cue. Hence instead of not hiking rates, in fear of worsening the already delicate financial situation, the Fed may opt for a moderate hike of 25 basis points so that the bank may continue to pursue its inflationary goal of 2%, without overstressing the Banking industry, a scenario that is widely being whispered in the markets. Besides the Fed’s interest rate decision as such, we also highlight the release of the accompanying statement which includes its forward guidance. Should the bank ease its aggressive hawkish stance and show some hesitation about its future rate hiking path, we may see the USD weakening, a scenario that highlights the possibility of an interest rate hike turning to a dovish hike. Furthermore, we intend to also focus on the release of the new dot plot, which may allow us to have a peak at the expectations of Fed policymakers for the terminal rate of the bank. Should the terminal rate remain above market expectations we may see a bullish effect on the USD. Also, we note the release of the bank’s new economic projections. It will be interesting to see whether the Fed anticipates a recession in the US economy or not. Should the bank actually see the US economy avoiding a recession or even one being rather shallow that may allow for the USD to gain somewhat. Last but not least, we also note Fed Chairman Jerome Powell’s press conference half an hour later. The Fed’s Chairman is well known to be able to reverse the market sentiment created by the speech as such and thus caution is advisable as volatility could be extended for USD pairs. Should the Fed Chairman actually sound hawkish enough, we may see the greenback getting some support. Once again, we would like to highlight that the Fed’s interest rate decision may have ripple effects into other markets such as the equities, but also to trading instruments such as gold, hence traders are advised to keep their guard up during that period.

EUR/USD continues in an upwards trajectory, above the ascending trendline, and the RSI figure remains close to 70. Hence, we maintain a bullish outlook for the pair. Should the bulls continue to reign, we expect 1.0790 (R1) level to break paving the way for the 1.0875 (R2) level. Should the bears take control of the pair’s direction, breaking the below the upward trendline, then the pair could test the 1.0650 (S1) support line and if broken may allow a testing of the 1.0535 (S2) level.

GBP/USD quickly regained its footing after the break below the ascending trendline, reversing course and rising back above the aforementioned trendline. As such we hold a neutral outlook for the pair as it moves in a sideways motion, however, we note that the RSI is nearing 70, which could imply that the Bulls may still be in control of the pair’s direction and may test resistance at 1.2300 (R1). For our neutral outlook to continue we expect 1.2300 (R1) level to hold and for the pair to remain between the 1.2300 (R1) and the 1.2150 (S1) levels, in addition to the RSI indicator moving towards 50 rather than 70. In the event that the bears take control of the pair and force the clear break below the 1.2150 (S1) support line, the move may open the floodgates and may facilitate the test of the 1.2040 (S2) level. For a bullish outlook we could see the pair break clearly above the 1.2300 (R1) resistance level, potentially clearing the way for the Bulls to test the resistance at 1.2395 (R2) level.

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During the American session we await the release of the EIA crude oil inventories and the BoC’s monetary policy deliberations before their March rate decision. During the Asian session, we await Japan’s Tankan Manufacturing and Non-manufacturing Index for March.