Daily Key points: Fed delivers double rate hike

As was widely expected the Fed delivered its first 50 basis points (double) rate hike, in twenty years, yesterday, shaking the markets. In its accompanying statement the bank sounded confident citing a healthy employment market with a robust number of job gains and declining unemployment while also cited that inflationary pressures are high reflecting supply and demand imbalances. The bank also noted the hardships stemming from the war in Ukraine which could add additional upward pressure on inflation as well as the COVID-related lockdowns in China which “are likely to exacerbate supply chain disruptions”.

In his press conference Fed Chairman Powell, despite foreshadowing future rate hikes to come, also stated that the bank is not actively considering 75 basis points rate hike which tended to disappoint traders and invite the greenback bears in. On the flip side, Gold’s price was supported from the weakening USD while US stockmarkets rallied at the prospect of the hiking path not steepening even further in the coming months. As the market digests the decision, we may see its attention turning towards the US employment data, starting today with the weekly initial jobless claims figure, while the crown of financial releases is expected to be the release of the US employment report for April tomorrow with its NFP figure.

USD positions lost ground across the board yesterday and characteristically AUD/USD jumped breaking the 0.7165 (S1) resistance line, now turned to support. As the pair’s price action broke the upper boundary of its past sideways movement and the RSI indicator below our 4-hour chart remains near the reading of 70 we tend to maintain a bullish outlook for AUD/USD, yet that remains to be seen. Should the buying interest be maintained, we may see the pair breaking the 0.7285 (R1) resistance line and aim for the 0.7390 (R2) resistance level. Should on the other hand the pair correct lower, providing for a chance to sellers to take over, we may see the pair breaching the 0.7165 (S1) support line, searching for lower grounds.

BoE to hike rates today

Today the Bank of England is widely expected to hike rates by 25 basis points and its characteristic that GBP OIS imply that the market has fully priced in such a scenario materialising. Yet the market’s expectations are considered to be even more hawkish given that more rate hikes to come, seem to have been priced in. Therefore, BoE may have to deliver more than just a simple 25 basis points rate hike for the GBP to get some considerable bidding, otherwise pound traders may be disappointed and sell the sterling. Should the bank deliver a 25-basis points rate hike, with the policymakers fully supporting the rate hike and the bank expressing a confident, hawkish tone to subdue inflationary pressures in the UK economy, we may see the pound gaining, as it would indirectly confirm the market’s hawkish expectations and signal that more rate hikes are to come, while anything less than that could weaken the pound.

GBP/USD rose yesterday yet proved unable to clearly break the upper boundary of its sideways movement, namely the 1.2615 (R1) resistance line. As cable maintained its price action within the boundaries of its sideways movement, we tend to maintain a bias for a sideways motion for now, yet BoE’s interest rate decision may alter cable’s direction. Should the bulls gain control over the pair we may see it breaking the 1.2615 (R1) resistance line and aim for the 1.2765 (R2) resistance level. If the bears take over, we may see GBP/USD dropping breaking the 1.2425 (S1) support line that withstood the pair’s downward pressure on the 28^th of April and take aim of the 1.2330 (S2) support level.

Other highlights for today

Today, in the European session we get Germany’s industrial orders for March, Switzerland’s and Turkey’s CPI rates for April while on the monetary front besides BoE’s interest rate decision, we note the release of Norway’s Norgesbank and the Czech Republic’s CNB interest rate decisions. Oil traders on the other hand may be more interested in OPEC’s ministerial meeting while from the US we note the release of weekly initial jobless claims figure that is due out in the American session. In tomorrow’s Asian session, we get from Japan, Tokyo’s inflation measures for April.

AUD/USD H4 Chart

Support: 0.7165 (S1), 0.7050 (S2), 0.6970 (S3)

Resistance: 0.7285 (R1), 0.7390 (R2), 0.7490 (R3)

GBP/USD H4 Chart

Support: 1.2425 (S1), 1.2330 (S2), 1.2250 (S3)

Resistance: 1.2615 (R1), 1.2765 (R2), 1.2865 (R3)

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