It is hard to make a trade when so many opinions are flying around, which is what happens when the Federal Reserve Bank committee members get a chance to make a speech. This is essentially noise, but also forward guidance, prepping the markets for what is inevitably going to happen from the next FOMC meeting.
Following on from Fed Chair Powell’s testimony on Tuesday other members of the FOMC have been giving their thoughts on the current US economy, with the most notable coming from the Fed’s Vice Chair Lael Brainard this afternoon.
In her speech, she outlined that the Fed will be in a position to hike rates as soon as asset purchase taper is complete and that the Fed’s balance sheet will shrink some time beyond the first rate hike. Regarding inflation, her assessment is that inflation will remain high through the first half of 2022 but that we should take projections with a fair amount of caution.
The US unemployment insurance weekly claims data that came out today was higher than expected and 23k more than the previous week. At 230k the 4-weel average is now working its way higher and is currently sitting at 210.75k. Brainard said in her confirmation hearing that the labour force participation is not showing the improvements expected, but that she is confident the rate will slowly improve.
Fed’s Barkin of the Federal Bank of Richmond who is a non-voter until 2024 said the Fed needs to be aggressive with the pace of rate hikes and that the labour shortage may be long lasting.
The other scheduled news ahead of the US open came from the Producer Price Index (PPI) for final demand in the United States, which increased 0.2% in December compared to the previous month’s upwardly revised 1%.
Once again at the London close, the forex heatmap offers no real risk direction but the turnaround in flows towards the yen and Swiss France and out of the commodity pairs suggest that the market is pivoting more negatively following on from the inflation comments from the Fed speeches.
The benchmark 10-year yield in the US is currently flat, but the Nasdaq100 is falling quite heavily. Tesla is leasing the top 6 tickers within the Nasdaq and Tesla lower as it has fallen nearly 5%, with Microsoft the next heaviest loss with a decline by -2.91%.
The US dollar index which is currently in its 3rd consecutive down day has found initial support at the first market structure old high around the $94.60 level. If the greenback was to venture deeper into the previous trading range I would be on the lookout for a “buy the dip” between $94.60 and $93.40. Any lower and I would be assuming a greater correction lower would occur.
The USDJPY has dropped with the US dollar move today and also found support at a level identified as the first possibility for trading long. The 61.8% Fibonacci retracement level and the 114.00 are acting as a decent support level. What happens next is crucial in whether there is a buying opportunity tomorrow or not.