2022-12-15 • Updated
On May 4, the US Federal Reserve revealed the federal funds rate for the next two months. Even though a 50 basis points hike was widely expected, the future is not so clear. Let’s figure it out bit by bit!
It’s better to start with a retrospective outlook on the funds rate. Since the Covid-19 began, the Fed kept the rates near 0.00% to boost the economy and decrease the negative impact of supply shortages, lockdowns, and slumps in retail sales. You can see a sharp decrease in rates in the figure below.
Low rates, $8 trillion printed over two years, and the slow down of the pandemic created a perfect field for inflation to rise. Now, it’s at a 40-year high, and the time has come for strict monetary tightening.
What could go wrong? Well, the war in Ukraine started and caused even more supply shortages. Now, the prices for oil and wheat are rising, so inflation is not likely to end anytime soon. The prices will keep increasing, but here’s the good news. Inflation has probably peaked, and the 8.5% CPI is likely to be the highest point we will see in the next several years. At least, the economy looks this way.
The Fed thinks the same. The Fed stated that inflation has peaked and will decrease over time in their report. Before the FOMC statement came out, the market expected a 50 basis point hike in May and a 75 basis point hike in July 2022. In the statement, Fed chair Jerome Powell said the Fed has no reason to hike rates so aggressively. Thus, the next rate hike will likely be not 75, but 50 basis points increase, which is positive for every risk asset like stocks or crypto.
US500 (S&P500) gained almost 3% after the FOMC statement. It’s not a change of the downtrend – the stock market is still under heavy pressure, and there are few positive factors. There is an investment strategy for stocks based on seasonal demand called “Sell in May and go away.” In theory, the period from November to April has significantly stronger stock market growth on average than the other months. Positive news from the Fed will boost the index higher, but not for long.
As for the chart, the US500 formed a daily reversal candle on May 2. Also, we see a bounce from the RSI oscillator. Currently, we are at a crossroad, so watch closely after the support of 4000 and resistance of 4370. We bet there will be a volatile move in the direction of the breakout.
US500 daily chart
Resistance: 4300, 4370, 4640, 4800-4850
Support: 4140, 4000
As we stated at the beginning of the article, inflation is here to stay. Most of the time, it’s a bullish factor for the gold price because even with shrinking inflation, prices will keep rising. Thus, the greenback will feel weaker for months, if not years.
Still, we wait for the gold to touch the $1840 support line and hold in this area. This is a trendline that worked for gold for more than two years. Thus, gold must consolidate for some time near this area and then skyrocket with targets at $2000, $2500, and higher. In the worst scenario, gold may fall below the trendline, and the bearish trend will start.
XAUUSD daily chart
Resistance: 1910, 1940, 2000, 2070, 2100
Support: 1870, 1840, 1750
On the contrary, the DXY (the US dollar index) is at the strongest resistance in five years. Thus, we expect a massive reversal from the 104.00 resistance line, another positive factor for gold.
US Dollar weekly chart
Resistance: 104.00
Support: 100.00, 97.00, 95.00
Use this information in your favor!
Let's dive into the world of gold. Currently, the price of gold, represented by XAUUSD, is stuck in indecision, hovering around the $1,975 mark. The market is anxiously awaiting two important factors: the release of the Federal Reserve's meeting minutes and the extension of the US debt ceiling.
The US Dollar has been remarkably sluggish for the past few weeks despite being within a distinct Demand zone…
A comparative examination of the strength of the US-Dollar often gives tangible insight into the direction of Gold (XAUUSD). The chart above indicates the expectation of a bullish price reaction from the demand zone
Welcome to October, the tenth month of 2023. For this installment of What to Trade, I have handpicked a few of my favorite trade ideas for the month. Let’s go over a few of them.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
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Don’t waste your time – keep track of how NFP affects the US dollar and profit!
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