XAUUSD analysis Market has broken the Descending channel in Upside.
The US CPI numbers for March will be released by the Bureau of Labor Statistics and the Market participants, analysts, investors, and traders regularly monitor the US CPI data to make investment decisions for their portfolios. In particular, the US Federal Reserve is still concerned about sticky inflation, and softer data may allow the US Fed to hold to a 25 bps rate hike at the FOMC meeting on May 2.
Annual US Inflation Rate
In January, the annual inflation rate in the US was 6.4%, but it dropped to 6% in February 2023, which was the lowest level since September 2021. This decrease occurred after eight consecutive months of inflation. Although the rate has decreased from the several-decade high of 9.1%, inflation remains significantly higher than the central bank’s target of 2%, hovering at 6%.
USDJPY is moving in an Ascending triangle pattern and the market has reached the resistance area of the pattern
Therefore, the way ahead for the Fed may not be as straightforward as it appears, especially with the recent increase in oil prices due to OPEC+’s announcement of an unexpected reduction in crude production on April 2. The predicted increase in the price index, which covers food and fuel, will be 5.1%, which will be the smallest increase in nearly two years. However, the US Fed’s monetary policy is more heavily influenced by the data on core inflation.
According to the BLS data release anticipated on Wednesday, the core consumer price index, which excludes food and energy and more accurately captures the magnitude of underlying inflation affecting US families, is forecast to increase 0.4% in March. If the annual US inflation rate for March also stays persistently high, the US Fed will likely continue raising interest rates in the coming year.
Pressure on the US Fed
There is already growing pressure on the US Fed to go slowly as the SVB banking crisis and higher interest rates have wreaked havoc on the financial viability of several US regional banks. The Federal Reserve and the financial markets are using distinct playbooks, according to a note published earlier this week by analysts at LPL Research. Tech and growth stocks have risen as a result of bets on a more dovish Fed, as future profits are discounted less as interest rates decline. One of Wall Street’s top concerns may be answered by a carefully awaited U.S. inflation data due out next week: whether the market has accurately predicted the near-term direction of interest rates.
USD Index is moving in the Descending channel and the market has fallen from the lower high area of the channel.
Investors are increasingly confident that the Federal Reserve would lower interest rates in the second half to prevent an economic slowdown in the wake of last month’s banking crisis. Bond yields have decreased as a result of such bets, boosting the massive growth and technology stocks that control broad market indices. The S&P 500 has increased 6.9% in 2023 so far. However, the more conservative rate estimate provided by the central bank predicts that through 2023, borrowing costs would continue at present levels. If the inflation number released next week reveals a significant increase in consumer prices despite the Fed’s recent aggressive rate hikes, that point of view may gain traction. Tom Hainlin, national investment strategist at U.S. Bank Wealth Management, suggests that if the stock market performs well, investors may start to price interest rates closer to where the Fed is currently at and may put pressure on asset values. The company advises clients to modestly underweight equities because it expects interest rate increases to have an adverse effect on business profits and consumer spending.
The US labor market remains tight, as evidenced by the March employment figures, which were issued on Friday. This could lead the Fed to raise interest rates once again next month. However, investors are increasingly concerned about a recession, betting that the upheaval in the banking sector brought on by Silicon Valley Bank’s collapse in March will tighten credit standards and harm growth.
The Fed’s Favorite Recession Indicator
The Fed’s favorite recession indicator in the bond market fell to new lows in the past week, supporting the argument made by those who think the central bank will soon need to lower rates. The indicator contrasts the current yield on a three-month Treasury bill with the implied forward rate on Treasury notes that mature in 18 months. Pricing in futures markets reveals investors’ bets that easing by the central bank later this year will cause the fed funds rate to fall from its present level of 4.75% to 5% to roughly 4.3% by year’s end. However, according to Fed policymakers’ predictions, few rate reduction are anticipated before 2024.The Federal Reserve and the financial markets are following two separate playbooks, according to analysts at LPL Research in a note published earlier this week. Tech and growth stocks have risen as a result of bets on a more dovish Fed, as future profits are discounted less as interest rates decline. Since March 8, the S&P 500 technology sector has increased 6.7%, more than double the increase for the index as a whole. According to economists surveyed by Reuters, figures for March, which are due on April 12, could show a 5.2% annual increase in the consumer price index, down from 6% in February.
EURUSD Market has broken the Descending channel in upside.
Markets will also be keeping an eye on first-quarter earnings, which begin next week and are due on Friday for large banks including JPMorgan and Citigroup. According to analysts, S&P 500 earnings will decline 5.2% in the first quarter compared to the same period last year, according to I/B/E/S data from Refinitiv.According to Mark Hackett, head of investment research at Nationwide, the Fed’s recent actions to stabilize the banking system may have given some investors renewed hope for a so-called Fed-put, which refers to expectations that the central bank will act if stock prices fall too far even though it has no mandate to maintain asset prices. Rate reductions would be one strategy the Fed might use to defend investors, according to Hackett. Although they haven’t yet, the market is betting—rightly or wrongly—that they will.Even if a recession prompts the Fed to lower interest rates sooner, stock prices may still be under pressure. Some investors are concerned that the decline in values and corporate earnings that would happen during a strong recession has not been included in stock prices.
Keith Lerner, co-chief investment officer at Truist Advisory Services, stated in a note earlier this week that a change in Fed policy alone is not usually sufficient to halt an economy on the decline or initiate a new bull market. According to him, the market has already factored in a lot of positive news, leaving little room for error.
GBPUSD Market has broken the Descending channel in upside.
And Investors and market participants will be monitoring the data closely to make investment decisions for their portfolios. The Federal Reserve and the financial markets are following different playbooks, which may lead to further volatility in the markets. Although some investors are betting on a more dovish Fed, others remain concerned about a potential recession and the impact it may have on stock prices.
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