Market Focus

The Federal Reserve has stated that quantitative tightening, or the removal of assets from the central bank’s $9 trillion balance sheet will begin on June 1. In this situation, the Fed will first allow up to $47.5 billion of US Treasuries and mortgage-backed securities to flow off its balance sheet. That rate would rise to $95 billion three months later.

Investors are now pondering the Federal Reserve’s monetary policy statement, in which the central bank announced a 50-basis-point rate hike for the first time since 2000. The increase is double what the Fed did in mid-March, when it raised rates 25 basis points for the first time since 2018. The federal funds rate now has a target range of 0.75 % to 1.00 %, up from the current range of 0.25% to 0.50%.

The S&P 500, Dow Jones, and Nasdaq all rose and extended their gains Wednesday afternoon as Federal Reserve Chairman Jerome Powell signaled that a future 75 basis point rate hike is not currently being discussed. The yield on the benchmark 10-year Treasury note climbed to 2.25%.

 China’s markets will resume trading Thursday after a three-day break to test whether Beijing has convinced investors that the strict Covid lockdown hasn’t hampered efforts to boost economic growth, while pledging to go gentle on big technology companies .

Stocks may have come under pressure after falling earlier this week in Hong Kong, with Friday’s rally reversing after China’s leaders vowed to stimulate a faltering economy and hinted at a softer stance on the private sector. Economic pessimism means the yuan is likely to continue to struggle and bonds are likely to be supported, although the outcome of the Fed’s key meeting on Wednesday will also help determine their direction.

In addition to the widely expected rate hike at Wednesday’s meeting, investors are also awaiting a new outlook from the Fed, which is a key driver of Chinese assets given the widening policy divergence between Beijing and Washington.

Main Pairs Movement:

The US central bank raised interest rates by 50 basis points and stated that it would begin shrinking  its balance sheet on June 1. Following the Fed’s monetary policy announcement, the dollar plummeted. On the other hand, U.S. government bond yields eased, with the 10-year Treasury yield closing at 2.93% after peaking at 3.01%.

Meanwhile, European Commission President Ursula von der Leyen proposed a sixth wave of sanctions against Russia, which would phase out Russian crude oil and refined products by the end of the year. The news has the potential to send the European indices down again.

The AUD/USD rate is currently around 0.7260, while USD/CAD is down to 1.2730. The EUR/USD pair is trading at 1.0620, while GBP/USD advanced beyond the 1.2600 figure. Even safe-haven currencies like CHF and JPY posted gains against the Greenback. Gold is currently trading at $1,883 a troy ounce while crude oil prices resumed their advances, with WTI now at around $107.60 a barrel.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Wednesday, flirting around the 1.050-1.055 level ahead of the US Federal Reserve monetary policy announcement. The pair regained some upside traction and touched a daily high near 1.055 in the late European session, but then failed to preserve the bullish momentum heading into the US session. The pair is now trading at 1.0551, posting a 0.31% gain. EUR/USD has stayed in the positive territory amid a quiet market mood as investors are awaiting the rate hike decision by the Fed. Fed chair Jerome Powell is expected to announce a rate hike by 50 basis points today due to overheating inflation. For the Euro, European Commission President Ursula von der Leyen said earlier today that they will phase out Russian supplies of crude oil and refined products, which is also the sixth round of sanctions against Russia.

On the technical side, the RSI is at 50, suggesting that there is no obvious trend for the pair now as the market stays quiet ahead of the key rate decision. As for the Bollinger Bands, the price crossed above the moving average and is heading north, therefore, the upside momentum should persist. In conclusion, we think the market will be slightly bullish as the pair is heading to retest the 1.0570 support, and a break above that level might open the road for near-term profits.

Resistance:  1.0570, 1.0728, 1.0810

Support: 1.0485

GBPUSD (4-Hour Chart)

GBP/USD edged higher on Wednesday, rebounding from a weekly low that touched earlier today amid positive risk sentiment and a dismal ADP report. The pair staged a goodish rebound and refreshed its daily tops above the 1.253 level during the European session, then retreated back to surrender most of its daily gains. At the time of writing, Cable has witnessed some fresh selling and stayed in negative territory with a 0.04% loss for the day. The private sector employment in the US rose by 247,000 in April, which is well below the market’s expectations, dragging the US dollar lower. However, prospects for more aggressive policy tightening and a 50 bps rate hike by the Fed today should limit losses for the Greenback. For the British pound, traders are waiting for the Bank of England’s policy announcements on Thursday, but a hawkish Fed today might cause Cable to face renewed bearish pressure in the second half of the day.

On the technical side, the RSI is at 41, suggesting that the downside is more favored as the RSI is below the midline, reflecting the bearishness of the pound. For the Bollinger Bands, the price failed to cross the moving average and dropped towards the lower band, indicating that a downside trend could be expected. In conclusion, we think the market will be bearish as the pair is heading to retest the 1.2430 support, which is the 2022 low for the cable.

Resistance: 1.2585, 1.2761, 1.3070

Support: 1.2430

USDCAD (4-Hour Chart)

As the US dollar remains under bearish pressure ahead of the Federal Reserve monetary policy decision later in the session, the pair USD/CAD has extended its slide that started yesterday in a choppy trading session. The pair touched a daily high above the 1.285 level in the early US session, then lost its positive traction and suffered daily losses. USD/CAD is trading at 1.2817 at the time of writing, losing 0.18% day-on-day. The pair is trading in a narrow range as investors get ready for the Fed monetary policy decision, where rates are expected to be raised by 50 bps, and the balance sheet will be reduced. On top of that, surging crude oil prices – and the latest news that the European Commission is ready to phase out all imports of Russian oil within six months – also provided strong support to the commodity-linked Loonie, weighing on USD/CAD.

On the technical side, the RSI is at 46, suggesting that the market is relatively quiet as the RSI is flat without any directions. As for the Bollinger Bands, the price has fallen from the upper band and then crossed below the moving average, causing the lower band to become the loss target. In conclusion, we think the market will be slightly bearish as long as the 1.2868 resistance line holds. On the upside, the Fed’s policy announcement later in the session might push the pair higher above that resistance.

Resistance: 1.2868, 1.2902

Support: 1.2721, 1.2544, 1.2473