It has been a busy day for those that talk, which generally messes the day up for those who trade. Tomorrow is not much better, so if you are trading you must keep very nimble, reduce your size and widen your stops. The war in Ukraine is about to intensify and the markets are going to be preparing for increasing supply chain disruptions from China due to covid and also due to the war. Volatility could rise again but thankfully it is still dropping.
Federal Reserve Chair Jerome Powell announced yesterday that, if deemed appropriate, the central bank will increase interest rates by more than 25 basis points at a future "meeting or meetings." Fed’s Bullard, who was a rebel during the last FOMC meeting, argued for a 50-basis-point hike, but the rest of the committee agreed on 25 basis points, and is now doubling down and calling for 300 basis points in the first year of the rate hike cycle. The Fed is, in his view, adding to inflationary pressures as businesses pass on higher costs to their customers. Yields on 10-year Treasury notes rose 5.6 basis points to 2.373%. The US dollar index had been weakening through the London session but rose at the start of the US session to test the intraday resistance. If the 98.595 level should hold the next logical level to the downside is a test of the 97.730, but a rising bond yield is likely to keep supporting the greenback
The rate hikes and hawkish Fed lifted the USDJPY and that is dragging up the other yen crosses. In this morning’s TA video, I described how the 90 levels on AUDJPY looked like today’s target and as the London session ends, we’re still not quite there yet but certainly within reach.
The ActivTrades sentiment indicator is so one-sided in this trade it is inevitable that the trend continues until these traders are stopped out or flip to the bullish side.
Today’s forex heatmap has shown the yen weaker relative to every other currency all day, with the NZD and AUD battling it out for the relative strongest pair. There has been a relatively risk-on positioning in the forex market and today’s global equities are all ending the London session green. Hang Seng ended the day by +3.15% and the Nasdaq is the closest US major with a 1.56% raise at the time of writing. The risk-on flows saw the precious metals market dip again, with gold and silver losing -0.68% and -1.46% respectively.
The EURGBP has dipped since the Bank of England raised its bank rate again and the price action is closing in on a possible reversal level. Personally, I am hoping it pushes through the 0.83152 - 0.83041 zone and takes out the lower low. However, I will be watching tomorrow to see if the bulls try and take control. If Belarus were to join in the war against Ukraine this would surely push the euro complex a lot lower as this would be a defining step toward a larger-scale war. Belarusian opposition forces are combat-ready and will deploy in their thousands. Tomorrow, we hear from the Bank of England governor and receive the UK's annual budget release. Prior to these key announcements, there is UK CPI data out before the London open so we could be on for a volatile day in the pound tomorrow.