EURUSDFED Rate tomorrow could spark the volatility I need to long. They almost always happen in areas that are overextended from the structure (white lines). You can't have the next big move without the liquidity.
Fedratedecision
Potential Market Reversal by May 2024Overview
I can't shake the feeling that a large market correction is around the corner and at the same time the market contradicts my sentiments by appearing stronger every day. So I decided to investigate the 1 Year Treasury Note ( TVC:US01Y ) which is directly affected by Fed Rates to see how the market correlated to those changes in the past. What I found leads me to believe that a steep -- but temporary -- correction is approaching between late March and early May 2024.
Historical Data (Feb 2016-Feb 2024)
While it may not always feel like it, the stock market appears to have an overall bullish affinity even during economic struggle such as can be seen during the pandemic of 2020. After an average of three FOMC (Federal Open Market Committee) meetings, a sharp correction took place within the FOMC meeting range or shortly following the third meeting. This is the case for all but the fourth window which actually manifested a reversal to what has become the rally we are experiencing today.
The chart above compares the TVC:US01Y (Top) to the SP:SPX (Bottom Left) and TVC:DJI (Bottom Right). I interpreted this data as potentially two truths:
1) Institutional investors retreat during transitional periods then resurface when the outlook is more clear, typically reigniting the previous trend despite an overall trend change within Fed rates.
2) Fed rate changes are a precursor for market reversals. While not the only factor, they appear to hold a significant weight that if supported could lead to a reverse in market trajectory as can be seen after the third and fourth window of FOMC meetings.
**I only accounted for FOMC meetings where the 1 Year Treasury Note experienced significant trend changes**
Market Projections
I do not believe an apocalyptic correction is coming, but I do believe there will be a significant dip across the board following one of the next two consecutive FOMC meetings. The current dates for those meetings are March 19-20 and April 30 - May 1, 2024. It is my opinion that the 50%-61.8% Fibonacci Retracement levels serve as a good opportunity to enter a position should a correction occur. However, technical indicators should be closely watched for signs of a recovery before entering any positions.
Gold price bounces off, downside remains bets easeHere is what you need to know on Thursday, January 18:
Technical Analysis: Gold price finds a temporary support near $2,000
Gold price attempts a firm-footing near psychological support at $2,000 amid a nominal decline in the US Dollar Index. The near-term demand for the precious metal has turned bearish as it has slipped below the 50-period Exponential Moving Average (EMA), which trades around $2,017. The higher-high-higher-low formation in the Gold price is over and market participants could utilize pullbacks for building fresh shorts.
The 14-period Relative Strength Index (RSI) has dropped to near 40.00. If the RSI fails to sustain above 40.00 levels, a bearish momentum will get triggered.
•Gold price discovers bets near $2,000 but remains on backfoot amid easing Fed rate cut hopes.
•Stubborn US inflation and robust Retail Sales data favour a maintenance of hawkish interest rate stance.
•Market participants will focus on Fed Bostic’s commentary ahead.
Gold price (XAU/USD) has executed a short-term recovery move in the midst of a persistent downtrend. Gold price printed a fresh monthly low near the psychological support of $2,000 on Wednesday, then bounced.
Yet despite the rebound, the precious metal remains on the backfoot as investors continue to worry about when the Federal Reserve (Fed) will start its long awaited rate-cut cycle. The hopes of an early rate-cut decision from the Fed are easing as the last leg of inflationary pressures in the United States is turning out significantly more stubborn than previously thought, due to robust consumer spending and steady labor market conditions.
Amid an absence of front-line economic indicators, market participants are expected to shift focus towards the first monetary policy meeting of the Fed, which is scheduled for January 31. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50%. Investors will keenly focus on how the Fed proposes to make three rate cuts of 25 basis points (bps) each in 2024, as projected in the December monetary policy meeting.
Daily Digest Market Movers: Gold price finds an interim support as US Dollar corrects
•Gold price discovers an intermediate support near the psychological $2,000 level after an intense sell-off.
•The near-term demand is still downbeat as uncertainty about an interest rate cut from the Federal Reserve in March has deepened.
•Trades have pared bets supporting a rate cut in March due to resilience in the US economy.
•Bets supporting an interest rate cut of 25-basis points (bps) have increased slightly to 61% but are still below the 75% recorded last week, as per the CME Fedwatch tool.
•Market expectations for early cuts from the Fed have been pushed back as price pressures in the US economy remained stubborn and consumer spending grew strongly in December.
•Upbeat economic indicators have provided room to Fed policymakers to maintain a restrictive monetary policy stance for a longer period than that anticipated by market participants before their release.
•This week, Fed Governor Christopher Waller said the central bank should not rush taking interest rates down as more evidence is needed to ensure that price pressures are returning to 2% in a sustainable manner.
•Christopher Waller advised that the Fed should reduce interest rates “carefully and methodically”, considering resilience in the US economy.
•Meanwhile, the US Dollar Index (DXY) has rebounded after a gradual correction to near 103.20, supported by risk-off market sentiment. 10-year US Treasury yields are maintaining a firm-footing above 4%.
•Later the day, investors will focus on the weekly jobless claims for the week ending December 12 and commentary from Federal Reserve of Atlanta Bank President Raphael Bostic.
•Bostic is expected to maintain a hawkish argument considering stubbornly higher price pressures.
•On Monday, Fed’s Bostic commented that progress in inflation declining towards 2% could slow if policymakers cut interest rates soon.
Short GBPUSD on Strong USD SentimentThe Federal Reserve's unwavering commitment to a restrictive monetary policy aimed at restoring economic balance and curbing inflation, recent market sentiment strongly favors the US dollar. Against this backdrop, the GBPUSD pair finds itself in a precarious position, hovering around the pivotal point of 1.27815. The heightened expectations of the Fed continuing its policy firming, coupled with concerns over inflation, suggest a potential downside for GBPUSD. Technical analysis aligns with this sentiment, indicating a possible bearish trajectory towards the target level of 1.26181. As we delve into the intricacies of this forecast, it becomes evident that the dynamics of strong USD sentiment and the Federal Reserve's steadfast approach set the stage for a compelling trading opportunity.
Technical Analysis:
Current GBPUSD level: 1.27815 (around pivot point)
Technical bias: Bearish 🐻
Target level: 1.26181
Reasoning:
Strong USD Sentiment: The recent statements from the Federal Reserve suggest a commitment to a restrictive monetary policy stance to achieve their inflation target. This has led to a boost in market sentiment favoring the USD, as evidenced by recent economic data indicating inflationary pressures.
Fed's Policy Actions: The Federal Reserve has implemented a restrictive policy over the past two years to achieve balance between demand and supply and restore price stability. The commitment to maintaining this stance until inflation reaches the 2 percent target suggests a continued strong sentiment for the USD.
Inflation Concerns: The recent inflation data, with the consumer price index increasing by 3.4% in the year through December, highlights concerns about inflationary pressures. This could lead to a stronger push from the Fed to maintain a restrictive policy, adding to the bullish sentiment for the USD.
Technical Levels: GBPUSD is currently around the pivot point area (1.27815), indicating a potential turning point. A break below this level could signal further downside movement. The target level of 1.26181 aligns with the bearish sentiment and provides a reasonable downside objective.
Risk Management:
Stop-loss can be set above Pivot Point or a key resistance level to manage potential losses.
Monitor economic releases and Fed statements for any changes in sentiment that could impact the trade.
Disclaimer:
The outlined trading idea is not a guarantee of future results, and past performance is not indicative of future performance. Always use risk management strategies such as setting stop-loss orders to mitigate potential losses. It is essential to stay updated on economic releases, central bank statements, and any other relevant news that might impact currency movements.
Happy Trading! 📉🐻
Gold price drifts lower amid elevated US bond yields, Fed rate c•Gold price ticks lower on Monday following the post-NFP price action whipsaw.
•Elevated US bond yields act as a tailwind for the USD and exert pressure on the XAU/USD.
•A softer risk tone should help limit deeper losses as the focus shifts to the US inflation data.
Gold price (XAU/USD) staged a goodish intraday recovery of around $40 from over a two-week low touched in the aftermath of the better-than-expected monthly employment details on Friday, albeit lacked any follow-through. The momentum ran out of steam near the $2,064 region amid the uncertainty about the Federal Reserve's (Fed) rate-cut trajectory, which, in turn, held back traders from placing aggressive directional bets around the non-yielding yellow metal.
The incoming US economic data pointed to a still-resilient economy, which, along with hawkish remarks by Fed officials, dashed hopes for a more aggressive policy easing by the central bank. This remains supportive of elevated US Treasury bond yields, which act as a headwind for the US Dollar (USD) and exert downward pressure on the Gold price during the Asian session on Monday. That said, a softer risk tone might help limit losses for the safe-haven XAU/USD.
Concerns about a slow economic recovery in China, along with geopolitical risks, weigh on investors' sentiment, which is evident from a fresh leg down in the US equity futures. Traders might also prefer to wait for the release of the US consumer inflation figures on Thursday to confirm the next leg of a directional move for the Gold price. This makes it prudent to wait for strong follow-through buying before positioning for the resumption of a one-week-old downtrend.
Daily Digest Market Movers: Gold price is undermined by reduced bets for aggressive Fed rate cuts
•Investors further scale back their expectations for an imminent shift in the Federal Reserve's policy stance following the release of a robust December monthly US jobs report on Friday.
•The US economy added 216K new jobs last week as compared to 170K expected, while the unemployment rate held steady at 3.7% vs. consensus estimates for an uptick to 3.8%.
•Adding to this, US Factory Orders surprised to the upside and grew more than expected in November, by 2.6%, after declining 3.4% in October (revised slightly up from -3.6%).
•Separately, the Institute for Supply Management (ISM) survey indicated that the US services sector, which accounts for more than two-thirds of the economy, slumped last month.
•The ISM's Non-Manufacturing Index dropped to 50.6 in December – the lowest reading since May – and the employment sub-component plunged to 43.3 – the lowest since July 2020.
•Dallas Fed President Lorie Logan noted that if the US central bank does not maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up, reversing progress.
•This comes after Richmond Fed President Thomas Barkin last week expressed confidence that the economy is on its way to a soft landing and said that rate hikes remain on the table.
•The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, which acts as a tailwind for the US Dollar and is seen undermining the Gold price.
•The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at the March meeting and a cumulative of five 25 basis points (bps) rate cuts for 2024.
•China's economic woes, along with an escalation of tensions in the Middle East, could lend some support to the safe-haven XAU/USD ahead of the US consumer inflation figures on Thursday.
•Lebanese militant group Hezbollah sent a barrage of rockets into northern Israel in what it called a “preliminary response” to the assassination of Hamas senior leader Saleh al-Arouri on Tuesday.
•The markets react little to an agreement between House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer on topline spending level, which breaks the deadlock to avoid a shutdown.
Technical Analysis: Gold price seems vulnerable, multi-week low around $2,024 area holds the key
From a technical perspective, any subsequent slide is likely to find some support near the $2,030 level ahead of Friday’s swing low, around the $2,024 area. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the Gold price to the 50-day Simple Moving Average (SMA), currently around the $2,012-2,011 area. This is followed by the $2,000 psychological mark, which if broken should pave the way for a further near-term depreciating move.
On the flip side, momentum beyond the $2,050 immediate hurdle might continue to confront stiff resistance near the $2,064-2,065 area ahead of the $2,077 zone. A sustained strength beyond the said hurdles might prompt a short-covering rally and allow the Gold price
Euro slides on Nordstrom squeezeThe euro has taken a nasty tumble today. In the North American session, EUR/USD is trading at 1.0144, down 0.76%.
The energy crisis surrounding Nord Stream 1, a key channel for Russian gas exports to Europe continues to simmer. Perhaps the pipeline should be referred to as 'Nord Brook 1', after Gazprom, the Russian energy giant, warned it will cut flows through the pipeline to just 20% of capacity starting Wednesday, claiming "technical issues". The EU has charged that the move is politically motivated, but Vladimir Putin is holding the better hand of cards and has no compunction about weaponising energy exports to the West.
The EU has scrambled to scale back its energy dependence on Moscow and announced today that member states had agreed on a voluntary reduction of 15% in natural gas imports. The deal was reached at lightning speed, reflecting the tremendous apprehension in Brussels about an energy crisis this winter. Still, the agreement has apparently been watered down, with exemptions for members that are not directly linked to EU gas pipelines and are completely dependent on Russia. The latest squeeze on Nord Stream 1 has unnerved investors and sent the euro sharply lower.
With the war in Ukraine dragging on and a potential energy crisis looming, it's no surprise that German confidence indicators are under pressure. Ifo Business Sentiment slipped to 88.6 in June, down from 92.2 in May. The soft reading was accompanied by a warning from the Ifo Institute, which warned of a looming recession in Germany, due to soaring energy prices and the possibility of a gas shortage in Europe's largest economy. On Wednesday, Germany releases GfK Consumer Climate, which is expected to fall to -28.9 in August, down from -27.4 in July. The index has been steadily weakening and has been mired in negative territory since October 2021.
All eyes will be on the Federal Reserve on Wednesday, with a live meeting that will include a supersize rate hike. The markets are expecting a 75bp increase for a second straight meeting, but a massive 100bp hike cannot be ruled out. A 75bp move could be met with a yawn by the US dollar, while a 100bp increase would be a surprise and likely boost the greenback.
EUR/USD continues to test support at 1.0191. The next support level is 1.0105
There is resistance at 1.0304 and 1.0390
