Make Greenbacks Great Again | Technical Outlook
Rising interest rates turn the heat up for borrowers as a surging US dollar wrecks havoc on global forex markets. Read the latest technical insight for crypto and correlated markets 👇
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Markets want dovish policy, but it’s hawks-only in the Fed nest
Last week, Fed Chairman Jerome Powell announced another 0.75% rate hike, raising the total fed funds rate to 4%.
It didn’t come as much of a surprise. After all, central banks are known to “test the waters” by leaking their plans ahead of the actual announcement. So why did markets tumble, shaving billions in paper wealth from U.S indices as they plunged, while bond yields pressed on to higher ground?
Nasdaq 100 Index, US100 - Weekly (W1)
US Government 10-Year Bonds, US10Y - Daily (D1)
As mentioned in our most recent report leading up to the FOMC rates decision, markets were pricing in the possibility of a dovish Fed pivot or a planned reduction in the aggressiveness of said rate hikes now the US economy is back in surplus GDP.
Contrary to market expectations, Powell had this to say…
“We don't think rates are sufficiently restrictive enough”
“The ultimate level of rates will be higher than previously expected”
“Inflation is not coming down”
“Rates will go higher”
“It's premature to discuss pausing. We're not even thinking about it”
“We won't make the mistake of withdrawing our policy too soon”
Raging, double-digit inflation jolted central banks across the world into action and should a high-interest rates environment stay for a prolonged period… stay tuned if you haven’t already 👇
Governments will lose any credible claim of solvency.
It’s clear that banks are hoping that a short recession will destroy demand and push down prices again. The only pressure on prices largely comes from supply-side constraints - something central banks can't fix.
So, it’s possible that rate hikes will simply crush demand while supply shortages continue to drive up prices, causing stagflation which, in theory, only strengthens the US Dollar.
US Dollar Currency Index, $DXY - Daily (D1)
Notice how as the U.S Dollar Currency Index (DXY) flirts around resistance and consolidates within its parabolic uptrend, other markets test support and vice versa.
Markets will be catching knives until confirmation of:
Bond yields normalizing
Signs of a bearish reversal in the $DXY.
Bitcoin vs. US Dollar, $BTC - Daily (D1)
Ethereum vs. US Dollar, $ETH - Daily (D1)
Standard & Poor’s 500 Index, SPX500 - Daily (D1)
Dow Jones Industrial Average Index, DJI30 - Daily (D1)
See you again for the next update.
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