After the European Central Bank (ECB) meeting last week, financial markets moved in tight ranges, expecting the FOMC Statement and the Fed message today. As such, the equity indices in the United States hovered around all-time highs, or even making new all-time highs, as in the case of the S&P 500 index that rose to a new maximum yesterday.
In Europe, the Euro Stoxx 600 Index is at one year high, trading close to a new all-time high. Despite the terrible vaccination rollout in Europe, and with many countries suffering a new wave of infections, investors choose to focus on the imminent economic recovery once the pandemic is over.
Crude oil lost about 1% yesterday as the new Crude Oil Inventories data is due later in the North American session. However, it holds well above the $60, and while there, it keeps a bullish bias. Copper and silver gave back 2%, respectively 1%, while gold remained unchanged.
No more bets – the Fed day is here! Finally, the event of the month for market participants is here. In the North American session, the Fed will release its statement and the economic projections, and nothing else matters for currency, fixed-income, or equity traders. Regardless of the market traded, this is the one event to watch for the entire quarter, as everything else pales in comparison.
Because financial markets move on future expectations, the focus on today’s event is on the economic projections, more particularly on the dots plot. Should the Fed signal a more hawkish stance, the market will be taken by surprise.
Other than the Fed, the CPI in Canada and the Crude Oil Inventories may move the Canadian dollar pairs. However, the focus is on the Fed and its message to financial market participants.
Markets to Watch
Gold, GBPUSD, USDJPY – markets in focus today.
Gold struggles at the first resistance level after it broke above the upper trendline of a falling wedge pattern. With only several hours ahead of the Fed’s meeting, the price of gold is under pressure from the rising yields in the United States. If the long-term yields continue to rise after the Fed’s decision and press conference today, gold will threaten to make new lows. As such, the two horizontal areas marked on the chart above are key for the future price action.
Today and tomorrow are two crucial days for the GBPUSD pair. On the one hand, today’s Fed meeting may change the technical picture completely. On the other hand, the Bank of England’s decision tomorrow may do the same, albeit in the opposite direction. Whenever that is the case, technical levels always helped. A quick look at the chart above makes it unlikely that the price will not check again the 1.40 level. Traders should expect for it to act as resistance, and if the Bank of England brings back the negative interest rates discussion, the rejection might be quite powerful.
One of the most interesting markets lately, the USDJPY hovers around the recent highs. It remains above 109 ahead of the Bank of Japan’s decision on Friday, and it appears that 110 attracts. However, the loss of momentum indicates possible weakness here, and that the market is stretched – bulls should take caution.
Winners and Losers
JPY remains the net loser on the FX dashboard, while the S&P 500 is the winner (it reached a new all-time high yesterday).