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Dow Jones Pushes Higher After Powell’s Rate Hike Remarks

With this much volatility and movement within the market, being nimble is key. If there is a range with some stops above it, the algos will have them in their sights as they look for liquidity to fill their clients’ orders. There is also the unpredictability of what news headlines are coming out, so if you don’t like volatility, now is not the time to be trading.

Market Wrap

It has been a busy day in the world of trading and investing, as geopolitics and regular macroeconomics have come together to increase the number of news headlines. The elevated volatility as shown by the VIX at 30 is creating opportunities if you are on the right side of the trade but also adding to frustration if you leave your stop within or around a trading range.

After remarks by Federal Reserve Chair Jerome Powell about the upcoming interest rate hike later this month, major stock markets in the United States extended their gains after the US futures open. Powell said in his testimony to the House Financial Services Committee that the Fed would be prepared to raise interest rates by more than 25 basis points if inflation figures outperform the Fed's estimates. Around the same time, Russian negotiators said a ceasefire will be discussed in talks with the Ukraine delegation tomorrow.

The ActivTrader sentiment indicator shows that 71% of traders on the platform are bullish the index, so I am waiting to see what happens should we take out the double top and probable liquidity above 34100. I fully expect there to be at least one more downturn.

Oil jumped above $110 per barrel and found resistance at $112, with WTI Crude hitting the highest prices since 2013 as Russia continued its assault on Ukraine. The US White House economic advisor said the US does not want to go after Russian oil and gas right now, they don't want to do anything counterproductive, but everything is on the table. To stabilize oil prices, the IEA released 60 million barrels of oil reserves, warning that global energy security is under threat.

The US Energy Information Administration (EIA) reported that commercial crude oil inventories in the United States fell by 2.6 million barrels to 413.4 million barrels in the week ending February 25.

US crude oil refinery inputs averaged 15.4 million barrels per day, up by 153,000 barrels per day from the average recorded the week prior. Refineries operated at 87.7% of their capacity, while gasoline production increased, averaging 9.3 million barrels per day.

The OPEC+ meeting concluded and the statement that was released said: "Following the conclusion of the 26th OPEC and non-OPEC Ministerial Meeting, held via videoconference on 2 March 2022, and based on internal consultation held exclusively by the OPEC and participating non-OPEC oil-producing countries in the Declaration of Cooperation of (DoC), it was noted that current oil market fundamentals and the consensus on its outlook pointed to a well-balanced market and that current volatility is not caused by changes in market fundamentals but by current geopolitical developments."

As indicated in the previously agreed schedule, OPEC+ has reconfirmed the production adjustment plan and monthly production adjustment mechanism as well as the decision to adjust upward the monthly overall production by 400k b/d for April 2022. The 27th OPEC and non-OPEC Ministerial Meeting will be held on 31 March 2022.

Automatic Data Processing Inc. (ADP) revealed in its report released on Wednesday that total nonfarm payroll employment in the United States grew by 475,000 more than expected last month. While small businesses experienced a 96,000 decrease, large businesses saw an increase of 552,000 and midsized businesses 18,000.

The Eurozone inflation rate came in at a record 5.8% in February, the German unemployment rate was better than predicted at 5.0%, and the UK annual house price growth was 12.6% in February, beating expectations of 10.7%.

The Bank of Canada today increased its target for the overnight rate to 0.5%, with the Bank Rate at 0.75% and the deposit rate at 0.5%. The Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds on its balance sheet roughly constant until such time as it becomes appropriate to allow the size of its balance sheet to decline. As of the fourth quarter of last year, the Canadian economy grew by 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed.

The forex heatmap remains mixed though the Canadian dollar has benefitted from both the BOC rate hike and increased energy prices. The flows out of the yen and Swiss franc are on the back of some softening in the rhetoric coming out of Russia towards Ukraine but the demands that they will try and negotiate may not be negotiable. Leading us back into an escalation of war.

I am keeping my eye on the AUDJPY as I feel it will be the canary in the coalmine to signal a turn in the markets. Currently the pair is grinding higher which is translating into the equities being supported. We may even keep getting higher equities until the March FOMC rate hike.

The fact that the majority of traders on the ActivTrader sentiment indicator are also short, makes me think the AUDJPY keeps going higher until they get squeezed out.

The US dollar is getting pushed around by the news reading algos as Fed Chair Powell speaks. Tomorrow is another day of testimony but there is less likely to be anything new said.


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