All eyes on the Fed

Today market attention is expected to turn towards the Fed’s interest rate decision. The bank is widely expected to hike rates and currently Fed Fund Futures imply a probability of 87% for a 25-basis points rate hike, with the rest implying a 50-basis points rate hike. Inflationary pressures in the US economy are at very high levels given also the recent release of the CPI rates for February while the US employment market is tightening to prepandemic levels given also February’s employment report. The question for the Fed is not whether to hike or not, but to what extent it should hike rates. The possibility of a 50-basis points rate hike should not be excluded and if performed could take markets by surprise and provide substantial support for the USD. But it’s not only about the rate hike. The market will be watching also the new dot plot to understand also how hawkish the views of the Fed’s policymakers are for the future, while the bank’s projections, especially about inflation are expected to be scrutinized by investors and analysts. Last but not least, keep an eye out for the forward guidance provided in the accompanying statement and Fed Chairman Powell’s press conference which is to follow the release.

The event is expected to create substantial volatility not only for the FX market but also for US equities markets and gold’s price. Oil traders on the other hand may have their eyes on the EIA crude oil inventories release. The indicator’s reading is expected to show another drawdown and if so could provide some support for oil prices as it could confirm that tight conditions are still present in the US oil market given that demand would have surpassed supply and thus could provide some support for oil prices. On the other hand, oil traders may place more weight on oil’s fundamentals and the peace negotiations for the war in Ukraine. CAD traders are expected to keep a close eye over the release of Canada’s CPI rates for February.

The Boc Core rate is expected to accelerate to 4.5% yoy if compared to January’s 4.3% yoy and if also and if accompanied by a possible acceleration of the core rate on a monthly level, we may see the CAD getting some support as it would show that inflationary pressures in the Canadian economy are rising prompting the BoC to an even more hawkish stance. During Thursday’s Asian session we would like to note the release of Australia’s employment data for February. The unemployment rate is expected to tick down to 4.1% and the employment change figure to rise to 37k if compared to January’s 12.9k. Should the rates and figures actually meet their respective forecasts, we may see the AUD getting some support as the release would be pointing towards a tightening of the Australian labor market and thus could provide with some confidence RBA and allow it to proceed with a rate hike during the year.

AUD/USD seems to have stabilised between the 0.7230 (R1) and the 0.7135 (S1) levels. As the pair’s price action seems to have broken the downward trendline guiding the pair since the 11^a. of March, we switch our bearish outlook in favour of a bias for a sideways movement initially, until AUD/USD decides the direction of its next leg. Should the bears take over, we may see the pair breaking the 0.7230 (R1) resistance line and aim for the 0.7285 (S2) level. Should the bears take over, we may see the pair breaking the 0.7135 (S1) support line and aim for the 0.7050 (S2) support level.

Slight bearish tendencies seem to have forced the USD index during today’s Asian session to test the 98.80 (S1) support line. We tend to maintain a bias for a wide sideways motion currently, yet the Fed’s interest rate decision could alter the index direction substantially. Should the USD strengthen we may see the index breaking the 99.45 (R1) resistance line and aim for the 100.00 (R2) resistance level. Should on the other hand the Fed’s interest rate decision actually disappoint traders, we may see the USD dropping and the index breaking the 98.80 (S1) line and take aim of the 98.00 (S2) level. Please note that the Fed’s interest rate decision could increase volatility for the index beyond expectations and the effect on the market could last for a longer period depending on the wording.

Other highlights for today

Besides the financial releases allready mentioned, from the US we also note the release of the US retail sales growth rate for February, while from Japan during tomorrow’s Asian session we get January’s machinery orders growth rate.

AUD/USD H4 Chart

Support: 0.7135 (S1), 0.7050 (S2), 0.6975 (S3)

Resistance: 0.7230 (R1), 0.7285 (R2), 0.7365 (R3)

USD Index H4  Chart

Support: 98.80 (S1), 98.00 (S2), 97.40 (S3)

Resistance: 99.45 (R1), 100.00 (R2), 100.60 (R3)

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