2022/05/04 (039) Technical Analysis

This Week Will Decide The Path For The USD Index
This Week, This Month May, Next Months June And August!
Will Interest Rates Be Raised 3 Times By 50 Basis Points, This Summer?

Fed Delivers Biggest Rate Hike Since 2000

The Federal Reserve raised the target for the fed funds rate by half a point to 0.75%-1% during its May 2022 meeting, the second consecutive rate hike and the biggest rise in borrowing costs since 2000, aiming to tackle soaring inflation. The central bank added that ongoing increases in the target range will be appropriate, with Chair Powell pointing to 50bps hikes in the next couple of meetings. The Fed will also begin reducing asset holdings on its $9 trillion balance sheet on June 1st. The plan will start with a monthly roll-off of $30 billion of Treasuries and $17.5 billion on mortgage-backed securities for 3 months and will then increase to $60 billion and $35 billion for mortgages per month. On the economic front, policymakers noted that the invasion of Ukraine and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.

Euro Regains Some Traction

The euro was changing hands at around $1.06, bouncing off its recent lows after the Fed made no surprises by raising the fed funds rate by 50bps and announcing it would start reducing its balance sheet, which, in turn, brought some downward pressure for the dollar. Still, the single currency remained close to low levels not seen since December of 2016 on lingering concerns about the impact of the Ukraine war on the European regional economy. On top of that, expectations that the ECB will raise interest rates much more slowly than the Federal Reserve make it difficult for the euro to attract investors.US 10-Year Treasury Yield Fluctuates

The yield on the benchmark US 10-year Treasury note fluctuated around the 2.97% level, remaining close to its highest since December 2018, after the Federal Reserve delivered its biggest rate hike since May 2000. The central bank raised the target for the fed funds rate by half a point to 0.75%-1% and confirmed it will begin reducing its asset holdings on its $9 trillion balance sheet on June 1st, as expected. Fed Chair Powell said during the press conference that the labour market is extremely tight and inflation is much too high, while the economy proved resilient in the past two years. He added that a 50bps rate hike is on the table for the next two meetings and a 75bps rate hike is not something policymakers are considering.

The Current FedWatchTool Of The CME
Target Rate Probabilities For The Next FED Meetings

200-225 by 84,3% on 07/27/2022 regular FED Meeting

225-250 by 46,6% on 09/21/2022 regular FED Meeting
250-275 by 45,5%

250-275 by 40,8% on 11/02/2022 regular FED Meeting
275-300 by 45,6%

275-300 by 41,0% on 12/14/2022 regular FED Meeting
300-325 by 44,0%

Basically Technical Analysis In An Historical Context
– Take Care Of Following Price Areas Below, My USD Bulls

103.82 points (monthly high from 01/2017)103.65 points (monthly high of 12/2016)
100.51 points (monthly high of 12/2015)
100.39 points (monthly high of 03/2015)

That’s why I also raised the stop course, this DXY trading capability, to 100 USD. And not just to secure our accrued profits, but also because if we fall below 100 points, the historical long-term picture, in the course development so far, should cloud over again.

Trading above 100 points confirms the long-term sideways trend in the USD index that has been ongoing since March 2015. Conversely, prices of over 100 points not only technically signal a bullish breakout, but also historically confirm it. Rather, building on this, the air upwards, towards the north-east, even up to 120 points, is possible in the next 10 years.

But this is not relevant for this week. And i will write deeper about it, may be in the next days. Because this week is the FED decision-making on Wednesday talk in town for the market – for us financial market participants…