The US dollar index rose to 105.40 after the Fed’s 75-basis-point key rate hike, while the stock and the crypto markets fell. However, during the past few days, investors and traders returned to risk assets as they expect inflation growth to slow. Moreover, Jerome Powell, the head of the Federal Reserve, announced the Fed might start cutting the key rate by 2024, which is the most evident hint of an upcoming market reversal.
What to trade next week?
2022-03-04 • Updated
Last week was truly unforgettable, filled with geopolitical tensions and changes of market sentiment. Russian ruble lost 40% against dollar amid sanctions from EU and US. Brent oil soared to almost $120 a barrel, a 10-year high for the commodity. Chinese stocks are near the covid crash levels. Let’s dive into the market together!
US dollar may have ended its four-month consolidation and started an uptrend. At the beginning of 2022 we noted that the US Dollar index may reach a resistance level of 103.00 till the end of the year, and it looks like the currency is heading towards the target. Combine that with rising inflation in the EU and lack of hawkish comments from the European Central Bank to get a solid bearish movement in EURUSD. The pair has broken through all major support levels (the last one was at 1.1050) and now is near 1.1000, the lowest since May 2020. Soon the US Fed will increase interest rate, and market is pricing this in. Expect the continuation of a downtrend in EURUSD at least until the hike.
Oil & Gold
Brent oil is close to the historical highs, climbing to $118.00 a barrel. Technically, the correction of an uptrend should emerge soon. There is a head & shoulders reversal pattern of H1 timeframe. Thus, XBRUSD may reach $102.00 in a matter of several days. If the supply shortages remain, oil is likely to rise higher. In this case, take profits should be placed at $120.00 and $122.00 levels. The metals are also feeling great, gaining from the economic uncertainty and inflation concerns. Gold, which is the main safe haven, is moving in a symmetrical triangle, usually a trend continuation pattern. Notice, that these triangles are tricky, so you shouldn’t enter the trade without a confirmation, which is a breakout and a retest of the trendline. In mid-term we expect XAUUSD to reach $2000 per ounce.
Stock market is recovering slowly. For example, US500 (S&P500) rose 7% from the last low but is still under the 200-daily MA. The same goes for US100 (NASDAQ), which is under heavy pressure amid high inflation and risk-off sentiment. We can be more certain about an uptrend in US stock only when both indices rise above the 200-day MA. Also, take a look at HK50, the main China stock index. It is moving in a downtrend for almost a year now and found a support at 21 850 level. If HK50 breaks below this support, we expect it to fall even lower, reaching 20 900 support level in a matter of several weeks.
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