Dark economic outlook, soaring inflation, and fear of stagflation are driving the current momentum in the global equity market. The US equity indices hit their lowest level in thirteen months yesterday. Despite this weakness representing an opportunity for bargain hunters, some have doubts about their participation in the markets today as they believe that the activity may not last for long.
Equity traders also feel uncomfortable about the Fed’s warning of worsening liquidity conditions across key financial markets due to the rising risk factors such as stagflation.
However, it is essential to state that if the next inflation reading shows that it has reached its optimum level, then it is by no means exaggeration that the Fed’sFed’s hawkish stance has peaked. And this means that the current fear about the Fed’s hawkish monetary policy only creates excessive fear among traders. Hence, the current sell-off could be an opportunity for traders and investors.
We have several Fed officials taking the stage today, which means many conflicting messages. So far, traders have not priced in an interest rate hike of more than 50 basis points from the Federal Reserve as the Fed Chairman assured investors in the last meeting that the Fed has no plans to increase the interest by more than 50 basis points.
In terms of economic data, we have the German ZEW Sentiment data hitting the tape at 10:00 BST, and it is likely to print another weak reading. The current forecast is for -43, while the previous reading was at -41. Remember, Germany is the biggest economy in the Eurozone. Another disappointing number here means that we are likely to see optimism dropping further among traders and investors, which means more pain for the European equity indices.
Euro: Parity calls are very much in play for the EUR/USD pair. The conflict in Ukraine is expected to push German recovery in despair.
Investor confidence in Europe’s largest economy is at its lowest level since the epidemic outbreak, as businesses continue to be concerned about the consequences of the crisis on the EU’s border. The ZEW institute’s gauge of expectations decreased to -41 in April, down from -39.3 the previous month, while the indicator of present circumstances worsened.
The weakness in the euro is likely to prevail, despite the fact that with every day passing, we hear more and more hawkish tones coming from the European Central Bank. However, currency traders completely ignore those calls as they are more focused on the dollar index and its strength. The fact that some members of the Federal Reserve have renewed speculation that the Fed could still increase the interest rate by 75 basis points has brought more strength to the dollar index.
Euro bears should keep in mind that the European economy could farewell than current expectations, representing a significant risk to the Euro-dollar parity call. For instance, the Governing Council could potentially become immensely sensitive to headline inflation, or wage growth in the Eurozone could see a sharp rise—although this isn’t a likely scenario. This could push the interest rate hike much forward, and we could potentially see an interest rate by the ECB as early as July.
Bitcoin price retraced to 30K price level, which we predicted in yesterday’s comment. There is no doubt that the Bitcoin price is extremely oversold, and the message of this can be seen by looking at the RSI indicator on the daily time frame chart, which tells us that the price is oversold. In addition to this, the 30K support level is of extreme importance among traders, and no one wants to see the price falling below this price level as it will seriously damage the price action.
It is vital to keep one thing in mind: bitcoin price at its current does represent a considerable bargain opportunity. It will not be long before we start hearing funds and corporates bagging bitcoin at its current price levels. For instance, yesterday, El Salvador bought more Bitcoins, and this continues to send one message and one message alone, and that is sheer determination to back bitcoin no matter what.
Technically speaking, on-chain transaction analysis also confirms that Hodlers are still unshaken by the current price action, as transaction analysis doesn’t suggest that Hodlers are liquidating their positions.
However, if the price breaks the 30K price level, we may see some capitulation taking place, bringing another wave of intense sell-off for Bitcoin.
Oil prices that tumbled yesterday are still maintaining their current trend. Yesterday, we saw Brent and crude oil prices plunging towards the $100 price level. This is chiefly because traders are worried that the current soaring inflation situation is more than likely to negatively influence oil demand as consumers have increasingly become more sensitive to looming economic crises. In addition to this, the strength in the dollar index is also fuelling the impact of oil prices. This is likely to continue today, especially since we have several Fed members speaking today, as mentioned above.
The safe haven is finally finding some bids today, and the price is trading in positive territory. The most crucial factor for the gold price remains the strength of the dollar index. During the intense sell-off in the equity markets in the past few days, the yellow metal has failed to show itself as the ultimate safe haven as the sell-off has been broad-based.
Another major factor that traders are keeping a close eye on is the monetary policy stance of the Fed. Any calls for an interest rate hike of more than 50 basis points are likely to influence the price adversely.
In terms of technical price levels, until and unless the price continues to trade below the 1,900 price level, the chances are that we aren’t going to see any serious strength for the precious metal.