Daily market analysis

April 7, 2022

U.S. equities dropped on Wednesday as investors eyed more hawkish actions from key Fed members. It is suggested that more monetary policymakers were open to moving aggressively to raise interest rates and bring down demand and persistently escalated inflation. The S&P 500 fell, adding to losses after it ended Tuesday’s session lower by 1.3%. The Dow Jones and Nasdaq also extended declines.

Fed officials unveiled a long-awaited plan to shrink their balance sheet by more than $1 trillion annually while boosting interest rates “immediately” to combat the highest inflation in four decades. The path forward for selling the assets they acquired during the pandemic was outlined Wednesday in the minutes of their March meeting, during which policymakers boosted interest rates by a quarter-point. They considered expanding but chose caution in light of the uncertainties created by Russia’s invasion of Ukraine, according to the transcript of their discussion.

Additionally, “many” attendees at the March 15-16 FOMC meeting believed that one or more half-point rises might be warranted in the future if price pressures continue to rise. Analysts interpreted this as evidence that officials now believe they should have acted more aggressively against inflation and are rushing to bring their main rate — which is currently in a target range of 0.25 percent to 0.5 percent — up to neutral; the theoretical level at which the economy neither accelerates nor slows.

Officials proposed shrinking the Fed’s balance sheet at a maximum monthly rate of $60 billion in Treasury securities and $35 billion in mortgage-backed securities – in line with market expectations and nearly double the peak rate of $50 billion a month during the last balance sheet trim from 2017 to 2019.

Main Pairs Movement:

On Wednesday, the greenback regained momentum as attention remained focused on the Eastern Europe war and hawkish central banks. The Euro/USD pair is trading below 1.0900, while the Cable is trading near 1.3070. Commodity-linked currencies continue to face intense selling pressure, with the Australian dollar finishing at 0.7510 and the Canadian dollar at 1.2530.

President Joe Biden of the United States issued an executive order prohibiting new investments in Russia. On the other hand, European leaders have been unable to achieve an agreement on a ban on Russian coal, despite their assertion that it was due to a technical glitch and that they would discuss it again on Thursday. Meanwhile, President of the European Commission Ursula von der Leyen stated that further penalties against the Kremlin will not be the last.

Later that day, the US Federal Reserve released the Minutes of its most recent meeting, reassuring market participants of the central bank’s strong attitude. Policymakers are determined to “rapidly” bring monetary policy to a state of neutrality. Additionally, the statement states that “participants emphasized that, depending on economic and financial developments, a shift toward a tighter policy stance may be justified.”

In terms of commodities, gold prices have remained consistent, currently selling at roughly $1,924 per troy ounce. Crude oil prices fell dramatically, weighed down by Wall Street’s dovish tone, and are now hovering around $97.00 per barrel. Global indices closed lower, with US indices pulled down further by the FOMC Meeting Minutes.

Technical Analysis

AUDUSD (4- Hour Chart)

AUDUSD edges lower on Wednesday, failing to head further north from the highest since June 2021, around 0.7460. From the technical aspect, the outlook for AUDUSD remains bullish as the dip- buying should help limit losses; at the moment, 0.7500 holds the key for the bulls. If AUDUSD drops below the support level around 0.7500, then it will enter a temporarily consolidated phase in the range of 0.7471 and 0.7536. The RSI reading is currently hovering around the midline, showing the directionless of the currency pair. If the dip-buying can hold and defend the current support pivot, then AUDUSD is expected to resume its bullish trend. On the flip side, as the MACD lines are in the crossing section, any meaningful downside momentum might accelerate further south.

Resistance: 0.7640, 0.7700

Support: 0.7536, 0.7471, 0.7432

Gold (4-Hour Chart)

Gold extends consolidation above $1900, still unable to attract buyers or sellers as per trading in quite a limited intraday range. Further price action eyes on the outcome of the FOMC meeting and the new sanctions from the US and the EU. From the technical perspective, the outlook of gold has limited bullish potential, offering a neutral stance at the time of writing. The RSI continues to hover around the midline, showing the directionless. Any meaningful upside momentum above $1951 will potentially turn gold into bullish in the near- term. On the other hand, failure to defend $1923, then bears will likely attract more selling pressure.

Resistance: 1951.78, 1974.4363

Support: 1923.7477, 1878.4351

EURUSD (4- Hour Chart)

EURUSD holds tight above 1.0900 ahead of the FOMC Minutes. From the technical point of view, EURUSD remains in a bearish stance as it continues falling below the ascending trendline in the near- term. On the 4- hour chart, EURUSD has a meaningful pullback after hitting the lower band of the Bollinger band. At the same time, the RSI has reached the oversold territory but turns flat within the negative levels afterward, implying absent buying interest. The immediate support awaits at 1.0806.

Resistance: 1.0969, 1.1069, 101150

Support: 1.0806

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDFOMC Meeting Minutes02:00 
EURECB Publishes Account of Monetary Policy Meeting19:30 
USDInitial Jobless Claims20:30200K