Sample Category Title

Federal Reserve (Fed) Governor Lael Brainard’s hawkish comments rocked the markets yesterday as she said that the next interest rate hikes should be more aggressive to tame the skyrocketing inflation in the US, and that the Fed could start reducing its near $9 trillion balance sheet as soon as next month, and at ‘a rapid pace’.

Because the market is fully ready for a taper tantrum on the rates front, it’s mostly the comments regarding a potentially aggressive balance sheet reduction that primarily dampened the market mood yesterday, sending the S&P500 some 1.26% down, to below its 100-DMA. Nasdaq sold off 2.26% and closed the session below the 15000 mark.

Both indices start giving toppish signs, and more importantly, the short-end of the US yield curve is rising so steeply that the inversion across the yield curve brings about the worries of an imminent recession in the US.

In this tense environment, investors will be closely watching the Fed minutes today. There would be no surprise if the Fed hinted a 50-bp hike in the next meeting. Activity in Fed funds futures assess more than 75% chance to a 50-bp hike.

Yet, what will really make the difference is the speed at which the Fed will shrink the balance sheet. And there is a big potential for a hawkish pricing on this front.

The market risks remain tilted to the downside given the hawkish shift in Fed officials’ latest comments, the scary inflation figures, combined with abnormally strong jobs reports and higher wages support the idea that if there is a good time for the Fed to hit the brakes on its ultra-lose policy, it is now.

In the FX

Brainard’s comments sent the US dollar rallying yesterday. The dollar index is now preparing to flirt with the 100 offers, the EURUSD sank below the 1.09 level as Cable pulled below the 1.31 mark, but if the Fed minutes doesn’t reveal a further hawkish surprise, we shall see the dollar give back the latest gains and the euro and the pound record a minor rebound.
Baby steps

The US and the Europeans are expected to announce a new round of sanctions on Russia after the atrocities in the cities new Kyiv that have been recently liberated by the Russian troops threw gas on fire. While the US treasury will halt dollar debt payments from Russia to increase the pressure of a default, EU is expected to announce a ban on Russian coal imports. Banning the Russian coal is a baby step in banning the Russian energy, as the Europeans are still not ready to digest the idea of a ban on Russian oil and gas for now, as it would be too hard on the economy.

The reduced risk of a European ban on Russian oil keeps the oil bulls contained. The barrel of US crude consolidates a touch above the $100 mark. Technically, the price is still above the 50-DMA which has not been significantly broken to the downside, hence remains the major support to pull out for a deeper downside correction in oil prices.

Data-wise, the latest API data showed a surprise build in US oil inventories last week by about 1 million barrels. The more official EIA data will give a clearer insight on the US oil inventories, but any positive news (higher inventories) will certainly not be enough to trigger a sustainable negative move in oil prices.

The S&P 500 falls back as yield curve inversion raises concerns of an economic contraction.

On the daily chart, a break above the February high at 4590 and a bullish MA cross suggest a steady market mood. A drop below 4580 prompted leverage buyers to bail out but found support at 4510.

4455 on the 20-day moving average would be the second line of defense in case of a deeper correction. Buyers may see short-term retracements as opportunities to stake in. A bounce above 4600 could be a continuation signal.

The US dollar rallies as traders hoard the safe haven currency. The price is in a narrowing consolidation range as a sign of short-term hesitation.

Overall sentiment remained downbeat after the latest rebound hit resistance at 1.3300. The bulls need to lift offers around 1.3220 before they could turn the tables.

Otherwise, the path of least resistance would be down. 1.3050 is the closest support and the psychological level of 1.3000 is a critical floor. A bearish breakout could make the sterling vulnerable to a new round of sell-off.

The Australian dollar soared after the RBA signaled higher interest rates later this year. The pop above the daily resistance at 0.7550 has put the Aussie on a bullish reversal course for the weeks to come.

Solid green candles indicate a combination of short-covering and momentum buying. Last June’s high at 0.7770 is the next target.

In the meantime, the RSI’s overbought situation led to a brief pause. Trend followers could be looking to join the rally at pullbacks. 0.7470 is fresh support in this case.

Daily Pivots: (S1) 160.72; (P) 161.34; (R1) 162.18; More...

Intraday bias in GBP/JPY remains neutral as consolidation from 164.61 is still extending. Outlook remains bullish with 158.04 resistance turned support intact, and further rally is expected. On the upside, break of 164.61 will resume larger up trend to long term fibonacci level at 167.93. However, firm break of 158.19 will turn bias to the downside and bring deeper pull back.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress, and notable support from 55 week EMA affirms medium term bullishness. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93. Sustained break there will be a long term bullish signal. This will now remain the favored case as long as 150.95 support holds.

Daily Pivots: (S1) 134.35; (P) 134.74; (R1) 135.18; More....

EUR/JPY is still staying in consolidation from 137.49 and intraday bias remains neutral. With 133.70 minor support intact, further rally is expected. On the upside, sustained break of 137.49 resistance will resume larger up trend for 144.06 projection level next. However, firm break of 133.70 will indicate short term topping, and turn bias back to the downside for deeper pull back.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Sustained break of 137.49 (2018 high) will resume larger pattern from 109.30 (2016 low). Next target will be 100% projection of 114.42 to 134.11 from 124.37 at 144.06. In any case, outlook will now remain bullish as long as 124.37 support holds, in case of deep pull back.

Daily Pivots: (S1) 0.8323; (P) 0.8348; (R1) 0.8369; More...

intraday bias in EUR/GBP remains neutral at this point. on the downside, break of 0.8294 will argue that rebound from 0.8201 has completed at 0.8511, and revive near term bearishness. Intraday bias will be back on the downside for retesting 0.8201 low. On the upside, however, break of 0.8511 will reaffirm that 0.8201 is a medium term bottom, and target 0.8697 medium term fibonacci level next.

In the bigger picture, a medium term bottom should be in place at 0.8201, on bullish convergence condition in daily and weekly MACD. Rise from there could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. In either case, further rise should be seen to 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Sustained break there will target 61.8% retracement at 0.9003. This will remain the favored case as long as 0.8294 support holds.

Daily Pivots: (S1) 1.4290; (P) 1.4425; (R1) 1.4529; More...

Intraday bias in EUR/AUD remains on the downside at this point. Current down trend should now target 1.3624 long term support next. On the upside, above 1.4559 minor resistance will turn intraday bias neutral and bring recovery. But outlook will stay bearish as long as 1.4940 resistance holds.

In the bigger picture, fall from 1.9799 is seen as a long term impulsive move. Next target is 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). Some support could be seen there to bring interim rebound. But overall, break of 1.5354 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of recovery.

Daily Pivots: (S1) 0.7522; (P) 0.7592; (R1) 0.7647; More...

AUD/USD retreated after hitting 0.7660 and intraday bias is turned neutral first. Some consolidation could be seen but outlook will stay bullish as long a s0.7455 support holds. As noted before, whole corrective decline from 0.8006 should have completed at 0.6966 already. Break of 0.7660 will resume the rise from 0.6966 to retest 0.8006 high.

In the bigger picture, correction from 0.8006 could have completed at 0.6966, after drawing support from 0.6991. That is, up trend from 0.5506 (2020 low) might be ready to resume. Firm break of 0.8006 will target 61.8% projection of 0.5506 to 0.8006 from 0.6966 at 0.8511 next. This will remain the favored case as long as 0.7164 support holds.

Daily Pivots: (S1) 1.2427; (P) 1.2462; (R1) 1.2522; More...

USD/CAD dipped to 1.2401 but quickly recovered. Intraday bias remains neutral first. Further decline is expected with 1.2591 resistance intact. As noted before, corrective pattern from 1.2005 could have completed already. Break of 1.2401 will target 1.2286 support and then 1.2005 low. On the upside, nevertheless, break of 1.2591 resistance will turn bias back to the upside for 1.2899 resistance instead.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness. Break of 1.2005 will resume the down trend from 1.4667 and that carries larger bearish implications too.