The Federal Reserve surprised markets with a more hawkish stance than anticipated. FOMC members now see two rate hikes happening in 2023; previously, they saw the first rate hike arriving as late as 2024. Fed Chair Powell expressed optimism about employment and noted that he sees a very strong labor market in 1-2 years. At the same time, the central bank acknowledged that inflation has increased notably and is likely to remain at elevated levels. Should inflation levels stay persistently above goal, the Fed would have to adjust their stance further.
Overall, the central bank showed itself from a hawkish side that few had expected to see so early. Inflation concerns and fears about an earlier end of the Fed’s ultra-loose monetary policy are likely to intensify in the near-term.
The market reaction was mixed. The US Dollar strengthened across the board, while equities saw a modest sell-off. Gold prices tanked, with XAU/USD breaking below the 200 DMA.
USTECH fell below the psychological support level at 14,000 points. Traders will now keep a close eye on 13,775 support, as a clear break below this level would pave the way for a deeper correction towards at least 13,462 points. The negative RSI divergence on the Daily chart is another worrying sign for USTECH bulls.
It is not looking good for XAU/USD either. The precious metal finished the trading day below the 200 DMA, which signals that XAU/USD could extend losses in the near-term, with $1755 the next major support level.
The daily close below 1.20 in EUR/USD has also caught the attention of traders. The short-term outlook has turned negative. Imminent support is seen at the 200 DMA around 1.1964, followed by the 61.8% Fibonacci level of the April-May rally at 1.1920. While the Federal Reserve is getting increasingly optimistic, the ECB is far more cautious and taper talks are unlikely to start in the coming months. This could potentially pave the way for a correction towards the 2021 low at 1.17.
A sell-off on Wall Street would weigh on European stock markets as well. However, EU indices could leave their US counterparts behind. An end of the ECB´s ultra-loose monetary policy is not in sight, and this will continue to support EU stocks. The EU50 index saw a minor decline on Wednesday, but a continuation of the rally appears more likely, and the Daily RSI is not hinting at overbought conditions yet.
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With equity markets rising to fresh record highs in the United States and Europe, risk appetite is rising again