It’s all about the Federal Reserve today and it’s a betting game now to see how the broader markets will react by the end of the day.
The turmoil involving US regional banks yesterday will not make things any easier to read. Treasury yields have fallen sharply as risk-off has swept through the markets, and that in itself keeps the greenback in a niche even though Fed futures are looking for rate cuts as early as September.
The yen also regained some ground with USD/JPY retreating from 137.70 levels, after it approached its March 8th high, to fall back below the 200-day moving average. Now, price action is vying for its 100 hourly moving average at 135.96 and a break below there would see sellers regain some control in the near term – which could open the way back towards 135.00.
EUR/JPY has also fallen below 150.00 from its highest levels since 2008, and a lot of Fed and ECB decisions will stall this week.
Elsewhere, we see oil drop further with WTI concentrating on $70 after that again. Then there is gold, which is benefiting from the risk aversion in the markets, as it rose back above $2,000 after the recent consolidation in and around the figure level.
I think unless the Fed is upfront about pausing, we may see some jitters return to the initial reaction before quiet heads settle as the dust settles.
Hindsight is 20/20 and if you try to look at things after the Fed now, maybe the Fed would do better to hike rates and then be implicit about a pause. I mean if they don’t go up today and that’s not enough to help the regional banks, that’s a terrible message for the markets and public cognition. Meanwhile, they have also lost their credibility on the inflation front.
It would be better to suffer a loss in one battle than to suffer a loss in every other department for sure.
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