US and European stock futures are barely trading in positive territory as sentiment continues to sag, making traders reverse their earlier trades. In simple terms, traders are fretted over the economic outlook and are still digesting the message from the Fed Chairman. He said in testimony yesterday that the US economy could face a recession. Investors paid close attention to this testimony yesterday, and it wasn’t really what he said yesterday, but the things that mattered the most were that he left out. The dollar index is mostly steady after his speech, and gold prices are trading lower due to this, while Bitcoin is steady and continues to trade above the 20K price for now.
When it comes to the stock market, it is pretty clear that investors have become much more attentive to fundamentals and are no longer willing to place bets just because of momentum. Free money has left town, the era of meme stock is over, and now investors are forming a model around valuation, and paying attention to the geopolitical situation have started to command more importance.
The USD/JPY remains the most intriguing forex among investors and traders. The factor driving the price here is the disparity in the two central banks’ monetary policies. However, something important has surfaced that traders do need to pay close attention to, and that is a former Japanese finance ministry official said that there is a possibility that a unilateral intervention is possible. Remember, the BOJ is holding and maintaining its monetary policy stance, driving the move to a multi-year high for the USD/JPY. If there is a unilateral move from the BOJ to stem the current sell-off, we could see strong support for the Japanese currency.
The Turkish Lira will also be in focus today as the Turkish Central Bank is expected to announce its monetary policy decision today. We expect the bank to hold its fire and maintain its interest rate at 14% today. Any surprise interest rate by the central bank will catch traders off guard, and we could see significant wild moves for the Lira.
In the UK, chaos continues for another day as the public is expected to face another day of widespread rail strikes throughout the country over wages. What is behind the current move is the inability of the government to control inflation in the country. Workers struggle to cope with everyday expenses, and life is likely to become more challenging as they march towards winter, when energy bills are likely to soar even more. Consumers are more likely to push deeper into depression.
Jerome Powell, the Fed Chairman, had another chance to lay down the Fed’s plan in testimony yesterday. Traders are now most interested in finding if the Fed is aiming for a soft or hard landing given where the inflation is, and more importantly, there is little evidence of inflation readings near their peak level. His comments in front of the House Financial Services panel suggested that the Fed is aiming for a soft landing, but the noise created by other members of the Fed is keeping traders on edge. For instance, Charles Evan continues to make a case and suggest that the Fed is in a position to adopt an even further hawkish stance and can afford to increase the interest even more aggressively. That sort of message is creating a risk-off mood among traders.
The Chairman will continue his testimony for the second day in front of the House panel, and for now, one thing is working in favour of the markets: the Fed chairman is doing an OK job in keeping the market expectation. The markets and the Fed are on the same page, encouraging news for risk-takers.
Gold prices are likely to remain volatile while more and more traders think there are fewer chances of gold prices taking a nosedive because inflation is likely to remain an anchor for longer. The most critical support level for the gold price is near the 1,800 price mark, and as long as the price continues to trade above that price mark, the path of the least resistance is skewed to the upside.
The crypto king is holding on to its ground while crypto traders pray that price doesn’t violate its recent lows. One thing is pretty sure – retail traders are pushed into the corner as the era of cheap money has finished, and professional traders will drive the next move in the bitcoin price. We think that after the current meltdown, we are likely to see regulators taking a more active role in this space and kicking out bad actors from this market, and that would encourage traders to see the potential in this unique asset. Although there is still time for the dust to settle, the Defi space isn’t going away, and this space will likely attract more capital in the coming months.