Traders have positioned ahead of the FOMC rate decision tomorrow and don’t want to get trapped in a directional position until they understand what the Fed is considering for monetary policy for the rest of the year. Because of this, we are seeing some false breakouts on news items, which are quickly followed by a reversion to the mean. With this in mind, if you are a breakout trader, it would be best to wait for market conditions to become more favorable.
This morning’s trading started off with a surprise rate hike from the RBA which is now following several other major central banks with tighter monetary policy to squash global inflation. Supply chain disruptions, high energy, and rising wages are the main concerns but as we will see with other economies, employment is not a concern currently.
The forex markets have spiked on occasion today and then come back to backfill the volume gaps. The Aussie is currently trading within the news candle price action and clearly waiting for tomorrow night and the FOMC meeting to conclude. If the Fed comes out with a 50bps rate hike, the market will have priced this in. In which case the more hawkish than expected RBA may push the AUDUSD to new highs.
The US dollar index is still compressing under the 104.00 level, so there is a danger that the US dollar explodes higher. Or that this is in a distribution phase and we see a big sell-off back to value. The current price is in the middle of the range formed between the 28th of and 29th of April. $102.90 would be my best case for getting a long position filled around this range and if so, I would be targeting the recent highs but also the next major fib extension towards $106.00 on a momentum break.
The USDCAD expanded the recent range with a slight push higher but swiftly found its way back into the range. The Russians are concentrating on Mariupol currently in Ukraine and meeting fierce resistance. Disruptions to oil are emanating from that region but we have global concerns about demand from China as well as sanctions against Russia. With the US dollar trading within a tightening range and oil also going sideways we should wait for direction rather than getting chopped up in these markets.
The Nasdaq has taken out yesterday’s highs but is currently lagging behind the other major US indices. The S&P500 and Dow Jones Industrial Average are up 0.78% and 0.50% respectively. The Nasdaq is going to be under pressure until we know the outcome of the monetary policy, with the worry, focused on a hard landing when the Fed removes stimulus and raises rates. There are currently 11.5 million job openings which is a record, as reported by the JOLTS job openings published today.
In other US news, the Factory Orders month over month came in above expectations and the previous reading was revised higher from -0.5% to 0.1%. In March, new orders for manufactured goods in the US were $557.3 billion, representing an increase of 2.2% monthly.