Everything involved in FED decisions
🇺🇸 More than 82% of market participants do not expect an interest rate hike by the Federal Reserve in the June 14 meeting. (The current interest rate ceiling is 5.25%.)
As it is known, market participants do not only expect interest rates to increase but also to decrease it. But it should be noted that if the stickiness of inflation is high, the Federal Reserve will probably increase the interest rate again, and because the market has predicted a decrease in the interest rate, this issue can put heavy pressure on stocks and indices. be risk-averse. Of course, this analysis is based on the assumption that the US labor market is strong and the unemployment rate is low. If the unemployment rate increases, the Federal Reserve will have to adopt an expansionary policy, and Congress will urgently increase the debt ceiling of the US government.
The US dollar is the foundation of all financial markets. Always one side of the price of commodities (like crude oil, Silver, and gold) or cryptocurrencies like Bitcoin and even the stock market is the US dollar! The US dollar is the main driver of all financial markets in the world. The US economy is the largest economy and the US dollar is the most common currency in the world. This is why all traders of all markets are confused in their decisions. Because the ability to predict the decisions of the Federal Reserve at this point in time has become difficult.
Why is the dollar strong even with the risk of rate hikes ending?
The US dollar index strengthened against most major currencies last week. In fact, the US dollar index has grown by almost 2% over the past two weeks. This is the best 10-day gain in the US dollar index since mid-September. But what happened that the US dollar index strengthened and is it possible to continue the growth of the US dollar?
The US dollar has grown as has the yield on US Treasuries. This means that the interest rate expectations of the market are retreating from the interest rate cut. Since the beginning of the US credit crisis, interest rate expectations quickly moved from interest rate increases to interest rate decreases. The market was worried that with the onset of the credit crisis, the central bank would be forced to lower interest rates to prevent recession and economic crisis. For this reason, traders buy the dollar as a safe asset
Interest rate increase or decrease?
While the market’s interest rate expectations were moving away from a rate cut, the chairman of the US Federal Reserve gave a speech saying that there is no need to raise interest rates. The market is preparing for another rate hike, but the Federal Reserve has not made a decision. This means federal uncertainty and that everything depends on the performance of economic indicators. The performance of the US economic data will determine whether the Federal Reserve will move towards raising interest rates or not.
Traders are focused on the net PCE inflation index.
April’s expectation for this index is 4.6%. This is not a good figure for the central bank. This means that the Federal Reserve may try to raise interest rates to lower it.
🇪🇺 Even though there has been no change in the possibility of interest rate hikes for the European Central Bank, a batch of recent worrying data for Germany, along with the recovery of the US dollar, have caused the Euro to fall, and as a result, the single currency has reached several levels. Lost a key.
The EURUSD currency pair now trades in a key area of 1.0800. And the reason for that is the fear of recession and global financial problems and the growth of the dollar last week. But at these low levels, can you think of buying Euros?
A key driver of the euro’s attractiveness against the dollar recently has been the perception that the Federal Reserve has reached its interest rate peak while the European Central Bank still has a way to go for contractionary policies. Although the European Central Bank will still be on the path of contractionary policies, markets are already re-betting on an interest rate hike by the US Federal Reserve after Logan’s speech.
You should note that the US debt ceiling problems and the purchase of the EURUSD currency pair were the biggest transactions among the G10 currencies, and since recent developments have ended positively for the dollar, we will probably see a Long Squeeze in this currency pair. According to the COT report, 7667 Long net positions Increased in EUR, and 5933 Long net positions Increased in the last week and these close positions by these holders can be a Long Squeeze situation. There is plenty of room to reprice the hawkish Fed expectations, so finding a floor for the EURUSD pair is risky right now.
The PMI indicators that will be published on Tuesday can play a very important role in stopping the fall of the euro or, as we mentioned above in the (Long Squeeze), fuel a sharp and further fall. The forecasts do not indicate much change in the economic outlook of the Eurozone. The manufacturing sector is expected to contract again, with growth fueled by service industries.
RBNZ, Hike interest rates again?
🇳🇿 The Reserve Bank of New Zealand is holding a policy meeting this week. It is expected to raise interest rates by 0.25% on Wednesday. If it does, it would be the 12th consecutive increase since the contractionary cycle began in October last year and would take interest rates to 5.50 percent, the highest among advanced economies.
The Bank of New Zealand will release updated forecasts in its quarterly monetary policy statement on Wednesday, so the New Zealand dollar could rise if policymakers raise their terminal rate to meet or exceed market expectations.
Next, in this week’s economic calendar, we will have Australia’s preliminary PMI indicators. For Canada, April wage growth will be released on Thursday. And for Japan, we’ll have machinery orders, the manufacturing PMI, and a preview of May inflation with the Tokyo CPI.
Important news/events for this week:
|466.434||High||USD||Core Durable Goods Orders (MoM) (Apr)||26/05/2023 12:30 PM||0.2%||-0.2%|
|466.435||High||USD||Core PCE Price Index (MoM) (Apr)||26/05/2023 12:30 PM||0.3%||0.3%||0.4%|
|466.430||High||GBP||Retail Sales (MoM) (Apr)||26/05/2023 06:00 AM||-0.9%||0.4%||0.5%|
|466.427||High||AUD||Retail Sales (MoM) (Apr)||26/05/2023 01:30 AM||0.4%||0.0%|
|466.413||High||USD||Pending Home Sales (MoM) (Apr)||25/05/2023 02:00 PM||-5.2%||0.5%||0.0%|
|466.406||High||USD||GDP (QoQ) (Q1)||25/05/2023 12:30 PM||2.6%||1.1%||1.3%|
|466.409||High||USD||Initial Jobless Claims||25/05/2023 12:30 PM||242K||250K||229K|
|466.396||High||EUR||German GDP (QoQ) (Q1)||25/05/2023 06:00 AM||-0.4%||-0.1%||-0.3%|
|466.392||High||USD||FOMC Meeting Minutes||24/05/2023 06:00 PM|
|471.681||High||EUR||ECB President Lagarde Speaks||24/05/2023 05:45 PM|