The big
question of the week – what is going on with the Federal Reserve (Fed)? The
U.S. monetary policymakers are sharing quite opposite positions. On the one
hand, the Fed’s raising of interest rates by 25 basis points is only pushing
stock markets up. On the other hand, it promises to turn extremely hawkish
while markets are certainly not ready for it.
Last week Fed’s
front man Jerome Powell gave all his efforts to support markets as he promised
not to raise interest rates too fast. This week it seems we have another
different Mr. Powell who is saying that “inflation is much too high” and the
Fed could get even more aggressive with the interest rates hike together with
unloading its huge balance sheet of nearly $9 trillion this May.
So, what is
really going on, Mr. Powell? Which of the Fed’s positions is false? Investors
seem to be puzzled as the S&P 500 broad market index continues to climb
towards its target at 4600-4650 points. Investors may hope for another
statement from Mr. Powell who is going to speak on Wednesday. But it doesn’t
look like he is going to take his words back, and he may even not add a dovish
tune to it, as it would mean the Fed doesn’t know what to do. That is even more
dangerous for investors.
The crude
market is intriguing as prices have little time to resume the rally towards
$160-180 per barrel of Brent crude. Some efforts, however, were made as prices
rose to $115 per barrel on Tuesday. But this week has to close above $120 to
justify the rally to $132 per barrel, a strong resistance level.
Gold prices
are consolidating below the $1920-1930 level per troy ounce with a possible
downside target at $1840 per ounce, or further down at $1750-1760 by mid-April.
Only increasing geopolitical tensions may cancel such an unfavorable scenario
for gold. In this regard, it is important to monitor the U.S.-China diplomatic
standoff, and potential U.S.-Russia cyber conflict that U.S. president Joe
Biden warned American business leaders about.
EURUSD
continues to ascend within the upside pattern towards 1.13000-1.14000. But many
technical indicators signal a high possibility of the downside correction below
1.08000. So, there is no clear direction to open trades. Short positions opened
at 1.10450 should be already closed. Any additional short positions are at high
risk. The closes support is at 1.09700 and it was tested on Tuesday. If the
pair fails to rebound, a strong downside movement to 1.09000 would be a
priority. However, no further downside movements below this target are expected
this week.
GBPUSD is
also in an upside pattern with a target at 1.34000-1.35000. However, some
indicators signal a possible downside. With such contradictory indications,
neither positions should be opened. The nearest support is at 1.31500. Once it
would be broken to the downside it would flag a strong decline of the pair.