FOMC Hikes - USD Spikes, SPX Snaps, Bring on the Presser
FOMC TALKING POINTS:
- The FOMC has just announced a 25 basis point rate hike, the first since 2018.
- This is lift-off as the Fed begins to pare back pandemic stimulus, largely in response to still-aggressive inflation. The Fed’s forecasts were telling today, with the bank looking for another 5-6 hikes this year while expecting inflation to fall to 4.3% by the end of the year, 4.1% for core.
- This write-up will be guiding through the press conference, with updates throughout the event. The time of each update will be denoted before the passage itself.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
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We’re getting closer to the press conference and our own Christopher Vecchio just covered the FOMC statement for the March rate decision. The big news of course is the 25 basis point hike, although this wasn’t much of a mystery. This move was well-telegraphed ahead of time and given the Fed’s quandary with inflation it was seemingly a necessity.
But 25 basis points is unlikely to do much to inflation. Likely, the Fed is going to need to do this many more times this year, and in the forecasts that they just released, they highlighted a possibility of another 5-6 hikes through this year. And they’re still expecting inflation to be at 4.3% by the end of the year, even with that taken into account.
In response, the US Dollar put in a strong bounce from a support zone that was tested a little earlier this morning.
US DOLLAR HOURLY PRICE CHART
Presser is beginning and very early in the speech Powell is remarking on inflation potential from the Russian invasion of Ukraine. Stocks aren't liking this news with the S&P 500 pushing back down to a session low.
I talked about the backdrop in stocks earlier today. Next support in SPX on my chart is around 4224, after which there's a spot between 4186 and 4193.
S&P 500 HOURLY PRICE CHART
Stocks showing a bit of a bounce after Chair Powell's opening remarks and following the first question.
The Nasdaq 100 ran into a spot of prior resistance and found support, which has led to a sharp bounce starting at around the 2:30 start time of the presser.
NASDAQ 100 HOURLY PRICE CHART
USD is giving back more gains from the initial pop on the statement, now back below pre-FOMC levels.
US DOLLAR HOURLY PRICE CHART
This could be interesting as a move of that nature may be signaling some form of capitulation. Gold prices have been crushed over the past two weeks and this could be brewing some reversal potential.
There's a key zone of resistance from 1921-1930, and if prices can force a break in the next couple of days, bullish strategies could come back into favor in Gold.
GOLD HOURLY PRICE CHART
The press conference is now over and there's 30 minutes left until equity markets close for the day.
At this point, I have to assign Chair Powell an 'A' for this meeting. He delivered a harsh message in a very soft manner, enough so that the quick panic that set in after the projections were released with the rate hike statement was quickly erased.
At this point, the US Dollar is net negative from the rate decision, and stocks are in positive territory. For a lift-off rate announcement, that sounds like he threaded the needle fairly well.
With that being said, there remains a plethora of risks on the horizon and today's meeting, frankly, does nothing to change that. A 25 basis point hike was never going to fix inflation nor will it now.
But, we've gotten the first rate hike off without a major market meltdown and given all of the factors at play, that wasn't a sure thing this morning so, for today, Powell threaded the needle.
--- Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.