US and European futures are heading for a more mixed open after recording a stellar rally yesterday on the heels of the US inflation data. The US CPI number came much lower than the market anticipation that provided the catalyst for traders to back riskier assets. After all, it was the inflation reading which kept traders on the sidelines. However, another important economic event will be unfolding later today at 7:00 PM GMT when the Fed will announce its monetary policy decision. After the US CPI reading, market players are expecting a victory speech from the Fed. However, it is absolutely important to keep in mind that the battle isn’t over yet. There are chances that the Fed’s press conference may not match the market expectations, and we may see a rollover in the US markets.
The Fed is still expected to announce further interest rate hikes today, and it is widely anticipated that the Fed will increase the interest rate by half a percentage point. The most important thing that the Fed needs to deliver today after the US inflation reading is its message about its battle with inflation. The Fed needs to show that it is still fully determined to fight inflation with the same force and enthusiasm that it started with. Although, it is true that when it comes to using the same force, the Fed doesn’t need to show in its action the same magnitude of interest rate hike that it triggered in its previous meetings. But the language needs to be solid, and the message needs to be firm if it wants to bring inflation anywhere close enough to its target.
The central bank is poised to release its new forecasts for interest rates and the economy today in its meeting. This is also something that will be closely watched by traders and investors as the forecast is more likely to set the tone for the US economic growth. Their forecast will also give us new information about the Fed’s forecast for their interest rate
What is Expected
As mentioned previously, it is anticipated that the Fed will show some comfort in its battle with inflation. Inflation reading in the US has moved away from its 40 years and yesterday printed the reading of 7.1%, which was much better than the market expectations of 7.3%. However, the number which was released yesterday isn’t good enough to claim victory, and we expect the Fed Chairman, Jerome Powell, to be firm with his approach on inflation like before. There is also a possibility that the Fed’s tough approach may actually spook market players as Jerome Powel shows his tough side, which is not something that the market is anticipating.
What is Market Anticipating
Market players are ready to hear a more dovish tone in the Fed Chairman’s tone today. They are expecting that the Fed will show its satisfaction today, and they will say that now the time has come to slow their role, which means a smaller increase in the interest rate. The market is expecting the Fed language to indicate that it is close to achieving the task and the rate hike cycle is much closer to its peak levels.
The surprise for traders and investors could be if the Fed Chairman sounds a lot less dovish than the market anticipations, which some believe is a more likely scenario. Such an event could trigger a sell-off in the market, and traders could shave off their profits.
The precious metal thoroughly enjoyed the gains on the back of the dollar index’s weakness, which is sitting near the five and half month low. Traders are more optimistic about gold prices as there are fewer chances for the dollar index to score more gains from here onwards. The reason is simple which is that the Fed’s armors have worked in fighting inflation, and now the time has come for the Fed to scale back on its efforts to fight inflation. This could make the dollar index weaker and that could keep gold prices firmly above the 1,800 price mark. This price level is highly important for traders as they know that if the price is going to move higher, gold traders must cement the support of 1,800 in order to begin the process of higher highs.
BTC also did see some solid gains. Traders actually paid more attention to the US CPI data than what is happening with the co-founder of FTX, who finally got arrested yesterday. There is no doubt that BTC prices are oversold no matter which metric you look at when it comes to technical price analysis. The price could move higher, and we could actually see the price moving above 20K before the year’s end if the current momentum continues. The one major challenge for the price action is its 50-day SMA whose price may break today. The move above this moving average could indicate more power shifting to the bulls.