The Federal Reserve (Fed) monetary policy is due to be published on Wednesday. Jerome Powell and the FOMC members will decide whether raising rates by +25bps is appropriate.
The European Central Bank (ECB) raised the interest rate to 4.00% (as expected) despite the turbulence around Credit Suisse, SVB and Signature bank.
Fitch credit rating agency released the following statement:
‘Our base case is that recent developments in the US will not cause major shifts in US monetary policy. If they do result in lower peak US rates or earlier US rate cuts than we expect, this could cause monetary policy in some APAC markets to be looser than under our baseline.’
The current expectations are for the US central bank to raise raised by +25bps.
SVB was warned by Moody’s it may face a downgrade. An emergency meeting was held in New York with SVB and Moody’s representatives. SVB decided to sell $20 billion worth of securities with low yields and reinvest the funds in securities with higher yields.
The sale triggered panic among depositors, which resulted in large withdrawals from the bank. As a result, over $40 billion were withdrawn from the bank in a single day (Thursday).
Janet Yellen, the United States Secretary of the Treasury initially said SVB will not be rescued. When Signature Bank faced a bank run, the US Government announced 100% of all deposits will be guaranteed (FDIC-insured US bank covers up to $250,000 per depositor).
US Dollar Outlook
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FOMC members have been aggressively raising rates for more than 6 months. A +25bps rate hike is the smallest rate hike compared to past monetary policy meetings that aimed to contain inflationary pressures.
Besides the anticipated rate hike, the FOMC economic projections will be released on Wednesday.
What we often do in an effort to determine the impact of significant market events is turn to the chart (see US elections analysis). We will begin with EURUSD.
EURUSD Daily Chart
EURUSD Daily Chart 17/03/23
The daily chart points to a potential top head and shoulders that is being painted at the time of this writing. Since 8th February Euro-Dollar is held in a price range, between 1.0490 – 1.0770 (which is part of the right-hand shoulder).
EURUSD may continue trading in the above range until the Fed reveals its monetary policy. EURUSD may require taking out 1.0490 (4hr close, which may follow a ret-test of the neckline).
To fully invalidate the reversal pattern, a firm break above 1.1030 may be required.
As long as the price is held between 1.0490 – 10770, no clear direction is provided. The weekly chart however is providing a different outlook.
EURUSD Weekly Chart
EURUSD Weekly Chart 17/03/23
As opposed to the daily chart, the weekly chart is painting a reversed head-and-shoulders pattern (which is a bullish trend reversal). There is no contradiction between the daily chart’s tech levels and the weekly chart aside 1.0770.
A weekly close above 1.0770 may pave the way for a stronger correction. A weekly close above 1.1030 may trigger a rally towards 1.2200.
A weak US Dollar may not necessarily indicate an improved market sentiment. The current market correlations may shift, in tandem with central banks’ monetary policies and risk events.
To reaffirm global outlook, we will look into the Nasdaq100.
Nasdaq100 Weekly Chart
Nasdaq100 Weekly Chart 18/03/23
The Nasdaq100 bottomed at 10,660, which ended the established downtrend that began. The corrective gains off 10,660 may suggest an attempt to paint and uptrend in the weekly chart (higher highs, higher lows).
A firm close above 12,900 is required for a firmer indication an uptrend has been confirmed. At current levels there is no clear direction or a potential signal where we are heading.
Intraday entries may be seen in shorter time frames, we are focusing on the medium-term trend.
Conclusion
Based on USD intraday time frames in the Forex market, we may witness some USD strength at an intraday level. However, the broader outlook (the next 12 months or so) is currently suggesting USD weakness against multiple currency pairs (excluding USDCHF).
We wee able to capitalize over USD weakness in USDJPY and NZDUSD in FX trade alerts. Due to the chart, we did exit ahead of the take profit. See the recently closed trades for more info.
At this stage we are unable to determine the reason for potentially wear US Dollar. While monetary policies often set the tone, risk events cannot be ruled out.
It is worth observing whether US weakness will reflect in the top cryptocurrencies such as Bitcoin and Ethereum.
Last Updated on March 18, 2023