Fed's Hawkish Pause
15 June 2023
Thursday has ushered in substantial volatility and momentum in the market, predominantly instigated by Wednesday's US interest rate decision. Contrary to the possible 11th consecutive rate increase, the Federal Reserve opted to maintain the rates at 5.25%. However, this pause is widely considered hawkish as Fed officials still foresee future rate hikes, potentially even more than previously expected. This development has resulted in a stronger USD, significantly influencing numerous financial instruments.
Overnight, we also witnessed comments from Japan's Chief Cabinet Secretary, Mr. Matsuno, that seemed to be a verbal intervention on the yen, causing it to weaken notably. Additionally, Australian job market data reported an employment change higher than expectations, with the unemployment rate dropping to 3.6%—positive news on both counts.
These developments led to the AUDJPY pair surging to its highest level since September 2022. The USDJPY pair also broke out of the pennant formation to the upside, reaching its highest level since November 2022. Both instances present strong buy signals.
Today's busy economic calendar forecasts an interest rate rise of 25 basis points to 4% from the European Central Bank. Other key data include US retail sales and the Empire State Manufacturing Index. We should therefore brace for continued volatility and momentum.
Indices initially dipped in reaction to the US interest rate decision, but quickly rebounded, maintaining the bullish sentiment with numerous buy signals. Meanwhile, the stronger dollar has negatively impacted commodities, with gold breaking out of the pennant to the downside, generating a mid-term sell signal. Oil is also trending lower, with Brent oil once again targeting the horizontal support of $71.6 per barrel—a potential breakout of this support could trigger a strong sell signal.