The US equity markets experienced a mammoth correction yesterday as traders reacted to Janet Yellen’s alarming statement about the US interest rate. There is no doubt that the US equity markets were due a correction as the prices went too far and too fast, and Yellen’s comments took a lot of froth out of the markets. Having said that, we do see some bargain hunters stepping in today, and as a result of this, the US stock futures are trading higher.
Janet Yellen, the US Treasury Secretary, created some serious volatility in the markets with her comments yesterday. Her initial comments about the possibility of the interest rate hike in the US made investors believe that they have been thinking correctly about the Federal Reserve’s monetary policy whereby the US interest rates could go up soon. This is despite the fact that the Fed Chairman said several times that the Fed isn’t thinking of any change in their monetary policy. However, the Treasury Secretary quickly backtracked from her initial comments by saying that she isn’t suggesting that the interest rate will go up.
The fact is that the cat is out of the bag, and everyone is going to have their doubts about the Federal Reserve’s monetary policy now. Traders know that Biden’s stimulus is going to increase inflation; we are already experiencing some early signs of this, especially in the commodity prices, which are going through the roof. Traders are going to continue to have their doubts about any new possible dovish comments from the Fed. This could result in much higher volatility in the equity, forex, commodity, and fixed income markets.
It is also certainly possible that we may see Janet Yellen and Jerome Powell working very closely in the coming days to assure the markets that Yellen’s recent comments on interest rates were nothing more than a slip of the tongue. However, the task is going to be immensely arduous, and traders are unlikely to take that bait.
It is important to keep one thing in mind when it comes to an interest rate hike, interest rates are unlikely to move higher anytime soon. That is because the Fed will need to begin the tapering process before they can start thinking of interest rate hikes. It is something that we have seen previously in the aftermath of the financial crisis, and the process is likely to be very similar now as well.
In the crypto market, we do see some insanity easing off as Dogecoin comes off its record highs. For crypto traders, it has been absolutely crazy as Dogecoin crossed above the 50 cent price level and became the fourth biggest coin by market cap.
Dogecoin has made more retail crypto traders millionaires than ever before. The volume has been crazy, and it is also likely that we may actually see Dogecoin continue its rally to the upside as the general consensus about its price point is that it can easily cross above the one-dollar price level. Dogecoin is the most speculative coin, and most traders are just not aware of the risk.
As for Ethereum, we do see the mighty bull rally cooling off a little as the second-largest coin by market cap crossed above the $3500 resistance level yesterday. It is likely that traders may see the current pullback in Ethereum as an opportunity as there is still a strong interest among institutional traders when it comes ETH. The general belief about ETH’s price level is that it is going to hit the 5K price level quite easily.