25bp rise on the horizon
22 March 2023
Today, we're anticipating a 25 basis point (bp) interest rate increase from the FED, instead of the previously speculated 50 bp hike. It's unlikely that the FED will pause, as that would suggest serious issues in the banking sector, and the FED's reluctance to worsen the situation. We'll also receive the economic projections, statement, and press conference from the FOMC today. As always, expect high volatility in the market, so if you're not comfortable with that, it's better to stay without a position.
In addition to the FOMC, we have other important events on the calendar today. Early on, we'll see the inflation data from the UK, which is expected to fall below 10%. Later, we'll also hear from Christine Lagarde at the ECB.
The week has started off positively for risky assets and stock traders, with a V-shaped reversal on Monday and a strong bullish session yesterday, where major indices defended key supports (like DAX) or threatened key resistances (like Dow Jones). However, the two-day rise is stretched, and we'll likely see a small bearish correction today, at least until the FED announcement.
On the currency market, we're seeing a typical risk-on mode, with JPY, CHF, and USD, the popular safe havens, losing value. What's different from yesterday is the rise in Australian and New Zealand Dollars, which were previously the weakest currencies in the pack but are now at the top of the board.
Commodities are also in a risk-on mode, with gold dropping sharply yesterday and falling below the psychological barrier of 2000 USD/oz, and dropping below the highs from the beginning of February. With this bearish momentum, we can expect more profit-taking and further drops, although not necessarily a huge decline. Oil, on the other hand, had a second bullish day in a row, but it's unlikely to bounce back as selling pressure remains, and we may see new lows soon.