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FOMC meeting will be a rollercoaster for the Dollar – Commerzbank

299701   March 21, 2023 18:45   FXStreet   Market News  

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The FOMC meeting tomorrow will be a rollercoaster for the Dollar, rather weighing on it, in the opinion of Antje Praefcke, FX Analyst at Commerzbank.

If the Fed is determined to continue with its measures against inflation that would be positive for the USD

“If the Fed is similarly determined as the ECB to continue with its measures against inflation that would be positive for the Dollar, as the market would have to adjust its key rate expectations to the upside.” 

“To my recollection, the expectations before a Fed rate meeting have never been so far apart, from 0 to 25 to 50 bps. Nobody really knows what we will get tomorrow, it is a bit like taking a pick from a chocolate box. Perhaps at this stage, not even the central bankers themselves know at this stage, who, if they had a wish, would probably wish not to have a meeting this week.

“I fear that Powell will have to run the gauntlet at the press conference tomorrow and that the FOMC meeting will be a rollercoaster for the Dollar, rather than weighing on it.”

AUD/USD sticks to dovish RBA minutes-inspired losses, well offered below 0.6700 mark

299700   March 21, 2023 18:45   FXStreet   Market News  

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• AUD/USD retreats from a nearly two-week high in reaction to the dovish RBA meeting minutes.
• A further recovery in the US bond yields lends support to the USD and contributes to the slide.
• Bets for a less hawkish Fed cap the upside for the Greenback amid a generally positive risk tone.

The AUD/USD pair comes under heavy selling pressure on Tuesday and snaps a three-day winning streak to a nearly two-week high, around the 0.6730 area touched the previous day. The pair maintains its offered tone through the first half of the European session and is currently placed around the 0.6675-0.6670 region, down nearly 0.70% for the day.

The Australian Dollar weakens a bit in reaction to the release of the dovish-sounding Reserve Bank of Australia (RBA) meeting minutes, which indicated that a pause in the rate-hiking cycle may be on the cards next month. The Australian central bank, however, warned that it will continue to do whatever is necessary to bring inflation back into line, though did little to impress bulls or lend any support to the AUD/USD pair. This, along with a modest US Dollar bounce from a five-week low touched on Monday, further contributes to the offered tone surrounding the major.

A further recovery in the US Treasury bond yields – bolstered by easing fears of a widespread contagion risk – turns out to be a key factor lending some support to the USD. That said, firming expectations for a less aggressive policy tightening by the Federal Reserve (Fed) could cap any meaningful upside for the US bond yields. Apart from this, a generally positive risk tone, supported by the news that UBS will rescue Credit Suisse in a $3.24 billion deal, keeps a lid on the safe-haven Greenback and might help limit deeper losses for the risk-sensitive Aussie, at least for the time being.

Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the highly-anticipated two-day FOMC meeting, starting this Tuesday. The Fed will announce its decision on Wednesday and is widely expected to deliver a smaller 25 bps rate hike. Market participants also expect that the US central bank might even cut rates during the second half of the year. Hence, investors will look for fresh clues about the Fed’s future rate-hike path, which will influence the near-term USD price dynamics and determine the near-term trajectory for the AUD/USD pair.

Heading into the key central bank event risk, traders on Tuesday might take cues from the release of the US Existing Home Sales data, due later during the early North American session. This, along with the US bond yields, will drive the USD demand and provide some impetus to the AUD/USD pair. Apart from this, the broader risk sentiment could further contribute to producing short-term opportunities.

Technical levels to watch

The market continues to breathe a sigh of relief today

299699   March 21, 2023 18:35   Forexlive Latest News   Market News  

The lack of any negative headlines in itself is a positive development, and that is what’s helping broader market sentiment today I would say. The banking turmoil has caused plenty of panic and worries but it looks like we are finally seeing traders and investors breathe a much needed sigh of relief.

USD/JPY steadily climbs to 132.30 area amid positive risk tone, upside seems limited

299698   March 21, 2023 18:26   FXStreet   Market News  

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• USD/JPY regains strong positive traction on Tuesday and draws support from a combination of factors.
• A positive risk tone undermines the safe-haven JPY and acts as a tailwind amid a modest USD strength.
• Bets for a less hawkish Fed warrant caution for USD bulls and might cap any further gains for the pair.

The USD/JPY pair builds on the previous day’s recovery from the vicinity of mid-130.00s, or its lowest level since February 10 and gains strong follow-through traction on Tuesday. The positive momentum remains uninterrupted through the first half of the European session and lifts spot prices to a fresh daily high, around the 132.25-132.30 region in the last hour.

A generally positive risk tone undermines demand for the safe-haven Japanese Yen (JPY) and turns out to be a key factor acting as a tailwind for the USD/JPY pair. The news that UBS will rescue Credit Suisse in a $3.24 billion deal helps ease fears of widespread contagion risk and boosts investors’ confidence. This is evident from a further recovery in the equity markets, which, along with a modest US Dollar bounce from a five-week low touched on Monday, remains supportive of the intraday move up.

The USD draws some support from a further recovery in the US Treasury bond yields, though expectations that the Federal Reserve (Fed) will adopt a less hawkish stance keeps a lid on any meaningful upside. In fact, the current market pricing indicates a greater chance of a 25 bps Fed rate hike on Wednesday. Investors also expect that the US central bank might even cut rates during the second half of the year and the speculations were fueled by the recent collapse of two mid-size US banks.

Hence, the market focus will remain glued to the outcome of the highly-anticipated two-day FOMC monetary policy meeting, starting this Tuesday. Investors will closely scrutinize the accompanying statement and Fed Chair Jerome Powell’s comments at the post-meeting press conference for clues about the future rate-hike path. This, in turn, will play a key role in influencing the USD price dynamics in the near term and help investors to determine the next leg of a directional move for the USD/JPY pair.

In the meantime, traders on Tuesday will take cues from the release of the US Existing Home Sales data, due later during the early North American session. This, along with the US bond yields, will drive the USD demand and provide some impetus to the USD/JPY pair. Apart from this, the broader risk sentiment could further contribute to producing short-term opportunities.

Technical levels to watch

USD/CAD: Canadian inflation may have a very limited impact on the Loonie – ING

299697   March 21, 2023 18:26   FXStreet   Market News  

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Inflation data for February will be published in Canada today. But the CPI report is unlikely to impact significantly the Loonie, economists at ING report.

Inflation a secondary factor

“Today’s inflation may have a very limited impact on CAD given the BoC’s recent stance.”

“CAD should continue to lag other pro-cyclicals on any rebound in risk sentiment unless there is a clear stabilisation in market sentiment on the US banking sector.” 

“At the same time, the BoC’s dovishness is likely lowering the medium-term attractiveness of CAD: we continue to expect a drop below 1.30 in USD/CAD by the second half of this year, but that should primarily be a consequence of USD weakness rather than idiosyncratic CAD strength.”

See – Canadian CPI Preview: Forecasts from five major banks, inflation growth to decelerate

Can Cardano hit $100 as cynics criticize Bitcoin’s $1 million bet?

299693   March 21, 2023 18:21   FXStreet   Market News  

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• Cardano proponents on crypto Twitter argue that the Ethereum-killer could hit the bullish target of $100. 
• The US Federal Reserve is battling rising inflation while printing more fiat, fueling a bullish narrative for decentralized cryptocurrencies. 
• The recent banking collapses have positioned Cardano and Bitcoin as safe havens, according to experts.

In the light of the US banking crisis and rising inflation in the largest economy in the world, crypto proponents are bullish on decentralized cryptocurrencies gaining relevance. Cardano proponents argue that the Ethereum-killer altcoin is ready for a bull run to its $100 target while cynics continue to criticize former Coinbase CTO Balaji Srinivasan’s $1 million Bitcoin bet. 

Also read: Breaking: Coinbase argues core staking services are not securities in its letter to SEC

Why crypto experts are betting big on  $1 million Bitcoin and $100 Cardano

The US Federal Reserve’s battle against rising inflation and the collapse of two of the United State’s largest banks, Silicon Valley Bank (SVB) and Silvergate, sent shock waves through market participants. 

Interestingly, the US Central Bank’s latest decision to coordinate with central banks and enhance provisions for the liquidity of the US Dollar have raised concern among traders. 

The US Fed took steps to guarantee deposits of all banks in its economy and assisted the banking system with nearly half the amount that it did during the 2008 crisis. According to Fortune, the Central Bank allocated $143 billion to holding companies for failed banks and lent $148 billion through a discount window program. 

The Fed inaugurated its Bank Term Funding Program (BTFP) and lent $11.9 billion to help banks raise funds to meet the needs of all depositors and increased the frequency of its swap operations from weekly to daily for the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. 

The Federal Reserve’s liquidity injection in its banking system is considered bullish for decentralized cryptocurrencies like Bitcoin. The steps taken by the central bank are drastic when compared to the Covid crisis of 2020 and the 2008 financial crisis. 

In light of these moves by the largest central bank in the world, experts like former Coinbase CTO Balaji Srinivasan and BitMEX founder Arthur Hayes have turned bullish on Bitcoin. Srinivasan recently made headlines for his $1 million Bitcoin bet. The expert predicted that BTC price is likely to hit $1 million within 90 days. 

Srinivasan challenged pseudonymous analyst James Medlock on Twitter that the US Dollar will enter hyperinflation within 90 days, for a $1 million bet. 

As the $1 million Bitcoin bet garnered backing and criticism both on crypto Twitter, Cardano proponents put forth the $100 ADA narrative, on similar lines. 

@LucidCIC, a Cardano proponent and crypto influencer on Twitter is bullish on both Bitcoin and Cardano for their decentralization. 

What makes Cardano an alternative to investors hit by banking crises?

Experts supporting the $100 Cardano narrative argue that the Ethereum alternative blockchain is more decentralized than most other Proof-of-Stake blockchains, including ETH. To substantiate this claim, it is key to identify the Nakamoto coefficient or Minimum Attack Vector (MAV), a metric that determines the decentralization of validator nodes. 

A validator node verifies transactions and adds new blocks to the blockchain. Its decentralization helps determine how decentralized a blockchain network is. As of December 2022, Cardano had a MAV of 24 and Ethereum a MAV of 3. 

MAV of Cardano and Ethereum 

The above data substantiates the claim that Cardano is eight times more decentralized than the Ethereum network. Stakers on the ADA network have full custody of their assets while staking on a hardware wallet. They delegate voting power to a staking pool operator of their choice while their ADA tokens are stored securely in a hardware wallet. 

Cardano’s uncomplicated staking process has made it a popular choice among crypto market participants. Further, the ADA blockchain’s decentralization and utility make it an ideal choice for investors looking for avenues to hold their funds during the banking crises, according to Lucid. 

If Cardano misses its $100 target, what’s next?

The Ethereum-killer blockchain noted a spike in whale activity over the past week. Based on data from crypto intelligence tracker IntoTheBlock, the number of transactions exceeding $100,000 hit a seven-day high above 5,000 on March 13. 

Whale activity on Cardano 

Typically, an increase in activity by large wallet investors is indicative of rising selling pressure on the asset and a subsequent correction in its price. In the short-term, following the two announcements by the US Federal Reserve discussed in the opening, ADA price failed to register a significant reaction. 

As seen in the Cardano/TetherUS three-day chart below, ADA is exchanging hands at $0.33. In the event of a correction, ADA price could plummet to support at $0.23. 

ADA/USDT 3D price chart

Cardano faces immediate resistance at $0.43 and $0.77 in its uptrend. The first bullish target is the 23.6% Fibonacci Retracement level of $0.91. In the past thirty days, ADA yielded 16.7% losses for holders.

European Monetary Union Construction Output s.a (MoM) registered at 3.9% above expectations (0.1%) in January

299692   March 21, 2023 18:21   FXStreet   Market News  

Tuesday 21st March 2023:  Asian Stocks Rise Ahead of Fed’s Next Interest Rate Decision

299691   March 21, 2023 18:17   ICMarkets   Market News  

Germany ZEW Survey – Economic Sentiment registered at 13, below expectations (16.4) in March

299690   March 21, 2023 18:17   FXStreet   Market News  

European Monetary Union Construction Output w.d.a (YoY) registered at 0.9%, below expectations (2.6%) in January

299689   March 21, 2023 18:17   FXStreet   Market News  

German ZEW Economic Sentiment Index declines to 13.0 in March vs. 16.4 expected

299688   March 21, 2023 18:12   FXStreet   Market News  

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• Germany’s ZEW Economic Sentiment deteriorated in March.
• EUR/USD bulls remain unperturbed by the downbeat ZEW surveys, near 1.0750.

The German ZEW headline number showed that the Economic Sentiment Index worsened in March, arriving at 13.0 from 28.1 in January, missing the market expectation of 16.4.

Meanwhile, the Current Situation Index came in at -46.5 from -45.1, worse than the market expectation of -45.8.

During the same period, the Eurozone ZEW Economic Sentiment Index slumped to 10.0 from 29.7, compared to the estimates of 23.2. 

Key points

The international financial markets are under strong pressure.

This high level of uncertainty is also reflected in the ZEW indicator of economic sentiment.

The assessment of the earnings development of banks has deteriorated considerably, although it still remains slightly positive.

Estimates for the insurance industry have also declined significantly.

Market reaction

The EUR/USD pair has ignored the downbeat data, keeping its range near 1.0750, up 0.22% on the day.

Federal Reserve Preview: Powell to persevere and raise rates, US Dollar set to (temporarily) rise

299685   March 21, 2023 18:12   FXStreet   Market News  

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• Economists are unsure if the US Federal Reserve will continue raising rates amid the banking crisis. 
• By following the ECB and hiking, Fed Chair Powell would convey confidence. 
• A hike is not entirely in the price and may trigger a temporary boost to the US Dollar. 
• The Fed’s dot plot and Chair Powell’s soothing words may reverse the initial reaction. 

“Nothing to see here, move along” – that is how I expect the Federal Reserve to act in the wake of the banking crisis, raising rates to fight inflation as if the world hasn’t changed. Nevertheless, any increase to borrowing costs will likely only temporarily lift the US Dollar, creating a potential trading opportunity. 

Here is the preview for the all-important Fed decision on March 21 at 18:00 GMT. 

Three reasons for raising rates

1) Conveying a message of confidence:

The Federal Reserve is the world’s most powerful central bank, and it is involved in regulation of banks, in addition to setting monetary policy. It was heavily involved in the takeover by the Federal Deposit Insurance Corporation (FDIC) of Silicon Valley Bank (SVB). The efforts to shore up First Republic, another regional banks, also included Fed officials. The central bank knows what is going on in banks.

On the one hand, the crisis could cause banks to tighten their lending conditions, cooling the economy and lowering inflation – doing the Fed’s work. That implies a lower need for raising interest rates. 

On the other hand, by reacting to the turmoil with a freeze on increasing borrowing costs, some would suspect that the Fed knows something all else do not – adding to panic. By following the plan, Federal Reserve Chair Jerome Powell and his colleagues would be conveying a message of confidence. 

The Fed aims for financial stability, so raising rates would contribute to such calm by means of message. It would also contribute to price stability. 

2) The Fed is already loosening policy via the Discount Window

Over the past few weeks, the Fed’s balance sheet ballooned by roughly $300 billion. Commercial banks tapped into the Fed’s Discount Window and other tools to gain much-needed liquidity. This expansion contrasts the central bank’s process of squeezing its balance sheet by refraining from reinvesting proceeds from maturing bonds. 

Bounce in the balance sheet:

Source: FXStreet

In other words, the Fed’s tightening process includes withdrawing money from markets, and its actions in the wake of the banking crisis have already reversed some of this process. This loosening is another reason to balance it by raising rates. 

3) Inflation is still too high

The banking crisis has been acting as a major distraction for markets from the main theme that dogged it beforehand – stubbornly high inflation. The Core Consumer Price Index (Core CPI) accelerated its advance in the past few months, contrary to expectations for an ongoing retreat. 

The 0.5% monthly Core CPI increase reported for February is a significant source of worry:

Source: FXStreet

In the labor market, the most recent report showed a cooling in wage growth, an increase of 0.2% MoM in February. Nevertheless, the US continues creating new positions rapidly, indicating further price pressures. 

Dollar set to bounce on rate hike, then react to dot plot and statement

At the time of writing, bond markets are not fully pricing a 25 bps hike. Several market participants have called for the Fed to pause, while “insider” Nick Timiraos, a journalist with the Wall Street Journal, has only said the bank faces a “tough decision.” 

Therefore, I expect the US Dollar to rise in response to such a rate hike, and stocks to decline. With the frantic “to hike or not to hike” debate taking place, the Fed’s projections for growth, employment, inflation, and most importantly – interest rates, has almost been forgotten. 

After the initial reaction, the focus will shift to interest rate projections. I expect no significant change for 2023 – the Fed will likely stick to its guns about refusing to slash borrowing costs this year. By signaling rates will near 5.50%, the Fed would continue conveying a message of confidence. It could offer a token reduction of its projections for 2024 and 2025 – but markets do not look that far. 

The sweetener for markets could come in the accompanying statement. Powell and his colleagues will have to comment on the banking crisis, probably by saying they are working closely to resolve the issues and are ready to act if the situation deteriorates.

Such remarks would ease and balance the pain coming from raising rates and defying expectations for rate cuts later this year. 

The Fed releases its rate decision, statement and dot plot at 18:00 GMT. I expect the US Dollar to jump initially in response to the rate hike and the dot plot, then pare some of its gains in response to the soothing words in the statement. 

And then, at 18:30 GMT, Fed Chair Powell speaks.

Powell: Focus on financial or price stability? Labor market could steal the show

Central bankers are artists at speaking without making clear commitments – talking without saying anything. However, Powell tends to speak clearly, and markets act clearly. Investors need to make certain decisions despite uncertainty, and I expect them to cling to any openness of Powell to ease policy. 

Will the Fed Chair prioritize financial stability over price stability? If Powell clearly prefers stable banks over fighting inflation, stocks would rise, and the US Dollar would fall. Such talk is unlikely – the Fed would want to seem to be working for the American people, not banks.

If fighting inflation is an overriding priority, even if it results in a recession, shares would tumble, and the Greenback would surge. Such a clear-cut message also has low chances. 

I expect Powell to dedicate significant emphasis and time to the labor market – the Fed’s second official mandate, alongside price stability., He could tie the bank’s next moves to jobs data rather than solely banks vs. inflation. 

In such a scenario, markets would cling to hope that the Fed would loosen policy to shore up the labor market – providing hope. That would mean a more significant recovery in stocks and a considerable retreat for the US Dollar – despite promises for higher rates in the dot plot. 

Final thoughts

The short version of my scenario is: risk-off on the rate hike and the dot plot, followed by an immediate and slight recovery in response to the statement. Then, Powell would further boost the risk-on mood with promises to react to the situation and with caring words about the labor market.

I want to stress that this is my baseline scenario, and there are various others. The tougher the Fed is on inflation, the further markets deteriorate. The greater the worry about banks, the more significant the boost for sentiment. 

The Fed decision is a complex event to trade, with various reactions within the event and further responses when Tokyo and London open. Trade carefully and lower your leverage – staying out of markets is also a worthy decision.