The US and European futures are trading higher, while traders are hesitant to place any significant bids ahead of the FOMC Minutes. Traders know that central banks around the globe are playing a catch-up game with inflation, and they are trying their best to front-load as much as they can to bring inflation lower while keeping close tabs on economic numbers. There is fear among investors and traders that policymakers may make another significant mistake if they continue to adopt a steep tightening phase as stagflation is sitting on the doorstep.
Nasdaq is the stock index which continues to remain under significant selling pressure as the outlook from tech companies continues to push the index price lower. For instance, investors are losing faith in social media companies and their advertisement revenue after the drama about Snap’s earnings results. Snap’s stock price plunged 43% in a regular session yesterday as investors fear that it will miss its earnings and revenue target. All major platforms, Meta, Snap and Twitter, have their own challenging situations, and it doesn’t seem like their pain will go away anytime soon.
The EUR/USD forex pair continues to sage rally this week, although there is some selling creeping in today. The pair is undoubtedly overbought (as per the RSI) on the daily time frame.
We have been getting positive momentum for the Euro mainly because economic data has been printing decent economic numbers. Yesterday, we had solid manufacturing PMI numbers out of the Eurozone, especially Germany.
In addition to this, a few members of the ECB council now believe that the ECB could increase the interest rate by 50 basis points rather than just 25 basis points. The ECB President, Christine Lagarde, has lowered those expectations, but at the same time, she believes that the Eurozone isn’t heading towards a recession. Traders believe that this may be a little early for her to make those assumptions, and hence they continue to remain sceptical about the current move in the EUR/USD pair.
Today’s most important economic event is the FOMC Minutes, as traders would like to know what the Fed thinks about its future monetary policy. Remember, economic data suggests economic slowdown, but the Fed is used to increase the interest rate in the face of economic weakness, as they did this back in 1972 to 1974. However, geopolitical risks such as the conflict between Ukraine and Russia, and the ongoing lockdown in China, are indeed two factors that have added a new taste to their cocktail.
Jerome Powell, the Chairman, has repeatedly assured market players that Fed isn’t going to adopt an overly hawkish monetary policy stance. This means there is still scepticism that the Fed would consider increasing the interest rate by 75 basis points. An interest rate of 50 basis points over the next two meetings is pretty much a given, and traders are referring to this as the Fed being on autopilot.
If we hear more confidence in Jerome Powell’s tone today, speculators aren’t likely to waste any time, and we may start to see heavy bids coming back for the dollar index. Remember that the dollar index has been retracing from its all-time high for the past number of days, and it is about time that we may see a reversal in that trend. This is because traders believe that the dollar index is well-positioned among other fiat currencies as it also acts as a safe haven against other currencies.
The crypto king, Bitcoin, is once again lost for a direction, and for the past number of days, we are not seeing any particular direction for the cryptocurrency. Bitcoin’s correlation has become stronger with the equity markets, and the correlation has become negative for the gold price. This means that as long as the equity indices continue to move higher, we may see bitcoin prices moving in a positive direction. For the last number of days, we have seen decent upswings for the stock indices, which confirmed a positive correlation for the bitcoin price. However, if the risk-off trade comes back in town, a likely scenario, as plenty of unknown factors linger around, we could see the bitcoin price breaking to the downside.
As for today, the event which could potentially move the bitcoin price (which has been done previously as well) is the FOMC Minutes. If the Fed shows that they are willing to tighten their grip further on the loose monetary policy, traders are likely to push the bitcoin price lower.
Looking at the gold price, the precious metal is certainly making a comeback as higher inflation doesn’t seem to be going away anytime soon because oil prices aren’t coming down overnight. Another reason we have seen a rally in the gold price is that traders are not anticipating the Fed to be overly hawkish. However, that could change. For instance, if economic readings begin to alter their prints, and we begin to get more positive price action for the dollar index, the gold price could fall.
The FOMC Minutes will be the key event for the gold price, and in terms of the price levels, traders are keeping a close eye on two critical price levels. Firstly, it is the support at 1812; a violation of that price could bring further weakness for gold. As for the upside, watch the 1,900 resistance level.