WTI crude oil price continues its recent rally, now trading comfortably above $71. The US dollar rallied last Friday as investors balance their portfolios ahead of the FOMC Meeting.
An important week for financial markets started today with the Federal Reserve meeting next Wednesday being the main event. The headlines over the weekend were stolen by news and images from the G7 meeting in the United Kingdom, where world leaders discussed a plan to counter the Chinese Belt and Road initiative as well as committing to delivering one billion COVID-19 vaccines to emerging economies.
The focus on this week’s FOMC meeting will be on any attempts from the Fed to quantify moderate inflation overshooting, as well as on the dot plots. US dollar bulls favour one hike to be signaled in 2023 and an increase in the interest on excess reserves at this very meeting.
The equity markets started the week on a strong note, as reflected by the German Dax index trading at 15,700 or the FTSE100 at 7,150. Commodities opened on a mixed note. On the one hand, the WTI crude oil price remains close to its recent highs, trading above $71, while precious metals (gold, silver) are down over 0.5%.
No important economic events are due today, so traders have time to position for the Fed and to prepare for the expected increase in volatility. Not even the Bank of England’s Governor speech is that important for the British pound pairs – any reaction will likely be disregarded in light of the main event of the trading week.
Markets to Watch
FTSE100, EUR/USD, USDJPY – markets in focus today.
FTSE100 holds above the 7,000 level, and now it appears to have broken out of a triangle that acted as a continuation pattern. The measured move points to 7,400 and beyond, achievable if the market continues to form higher highs and higher lows.
The EUR/USD pair ended last week down to the 1.21 area. The main currency pair of the FX dashboard traded with a weak tone after the ECB staff projections on Thursday revealed the inflation is expected to reach only 1.4% in 2023, far away from the 2% target. Hence, no matter how much the ECB raises the economic growth outlook for the Euro area, the central bank’s mandate is in danger if the easing is removed too early.
On the other side of the Atlantic, the pressures mount for the Fed to act as suggested by rising inflation and strong economic growth. Traders may want to take some risk off the table ahead of the Fed meeting, especially considering that the EUR/USD pair was one of the strongest performers in 2021.
The USD/JPY pair rallied this year. It started the year in the 102 area and peaked so far in the 111 area. But it met tough resistance above 111 and traded with a weak tone ever since. A break below 108.5 should trigger more weakness, while a move above 110.30 suggests a new higher high is possible. For now, it found dynamic support against the lower edge of a rising channel.
Winners and Losers
Crude oil continues its bullish ride, the US dollar remains weak despite a small rally seen last Friday.