By JustMarkets
Federal Reserve Chairman Jerome Powell’s testimony has certainly taken on a more hawkish tone compared to his last comments in February. Powell’s words now: “Because recent economic data have been stronger than expected, it suggests that the ultimate level of interest rates is likely to be higher than previously thought”. The probability of a 50 basis point interest rate hike at the March 21-22 Fed meeting jumped to nearly 70% from 24% the day before. In December, the average forecast of Fed officials assumed a target federal funds rate of 5.1%. Still, yesterday’s message from Powell indicates that markets estimate the federal funds rate at 5.4% by the end of the year. That means rates will rise another 100 bps. This hawkish stance has led to a sharp increase in government bond yields and a rise in the dollar index against major currencies.
The trend on the EUR/USD currency pair on the hourly time frame is bearish. The price is trading below the moving averages. The MACD indicator is deeply negative, but there are the first signs of sellers’ weakness. Under such market conditions, traders should expect a slight pullback to the moving averages, as the price is oversold. Buy trades are best considered from the support level of 1.0519 but with intraday confirmation. Sell deals can be considered from the resistance level of 1.0564 or 1.0576, subject to a reversal impulse.
Alternative scenario: if the price breaks down through the resistance level of 1.0656 and fixes above it, the uptrend will likely resume.
Despite a sense of stability returning to the UK real estate market, despite the conclusion of an important Brexit deal with Northern Ireland, despite an unexpected rise in business activity, the British pound was unable to maintain its upward momentum. After Fed Chairman Jerome Powell reopened the door for a faster interest rate hike yesterday, investors began to return to the dollar, leading to sell-offs in other currencies, such as the euro and the pound sterling.
From the technical point of view, the trend on the GBP/USD currency pair on the hourly time frame is bearish. The price has deviated strongly from the moving averages. The MACD indicator is deeply negative, with signs of divergence. Under such market conditions, sell trades are best sought from the resistance level of 1.1928 but with confirmation in the form of a false breakout or reverse reaction. Buy trades are best sought from the support level of 1799, but better with confirmation on intraday time frames.
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Alternative scenario: if the price breaks out through the 1.2050 resistance level and fixes above it, the uptrend will likely resume.
The Bank of Japan faces problems that no other central bank faces. As demand in the country has been declining for decades, the central bank has used stimulative monetary policy for years to restore it. The country’s domestic inflation is now at a 40-year high at 4%, but it’s not much compared to other major economies. Among the world’s leading central banks, the Bank of Japan has not raised interest rates since 2016 while adhering to its “Yield Curve Control” (YCC) policy to keep long-term interest rates low. This involves buying virtually unlimited amounts of Japanese government bonds. The new BoC Governor, Ueda, who is likely to take Kuroda’s place after April 8, will also be constrained by the same circumstances.
From the technical point of view, the medium-term trend on the currency pair USD/JPY is bullish. The uptrend trend continues, and the price is steadily growing, breaking through the resistance levels one after another. The MACD indicator is positive, and there are signs of overbought. To buy at such heights is not the best idea, so it is better to wait for a small correction. Under such market conditions, it is better to look for buy deals from the support level of 137.09, but only with intraday confirmation. Sell deals can be searched from the 138.15 level, but with additional confirmation in the form of a reverse initiative on the lower time frames.
Alternative scenario: if the price fixes below the 135.25 support level, the downtrend will be resumed with a high probability.
The OECD’s latest Canadian Economic Survey says that faster growth in living standards will require a stronger business environment to bring Canada’s weak productivity and investment growth in line with the leading economies. The Survey presents updated GDP growth forecasts of 1.3% for 2023 and 1.5% for 2024. The tight monetary policy last year will help reduce inflation to 2% by the end of 2024. Public finances are also expected to strengthen in 2023, helped in part by rising commodity price revenues. The Bank of Canada will also meet today on monetary policy. Economists believe the BoC will not raise rates, but the key question will be whether the BoC will leave the door open for further hikes.
From the point of view of technical analysis, the trend on the USD/CAD currency pair is bullish. The triangle pattern is classically triggered in the continuation of the trend. The price impulsively broke through all the levels and rushed upwards. At the moment, the price is trading above the moving averages. The MACD indicator is overbought. Under such market conditions, it is worth looking for buy deals from the support level of 1.3711 or 1.3664, but only with confirmation in the form of reaction on the lower time frames. Sell positions can be searched from the resistance level of 1.3775, but only with a confirmation in the form of a false breakout and short targets.
Alternative scenario: if the price breaks down and consolidates below the support level of 1.3600, the downtrend will likely resume.
By JustMarkets
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
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