Market Expectations and Recent Price Actions Overview

Market Expectations and Recent Price Actions Overview

As the financial markets eagerly await the Federal Open Market Committee (FOMC) interest rate decision, the focus is also on key economic indicators such as the Consumer Price Index (CPI) and Producer Price Index (PPI). The recent rate cuts by the European Central Bank (ECB) and the Bank of Canada (BOC) have set the stage for expectations of a hold on rates in June. The Fed Chair, Jerome Powell, emphasizes the importance of sustained disinflation for any future rate cuts. Market analysts predict that the Fed will maintain the current interest rate in June, with expectations of only two rate cuts in 2024, starting in September. Traders are also eager to see updates in this quarter’s dot plot, particularly regarding projected rate cuts for 2024.

The upcoming CPI report is expected to show persistent inflation in sectors like housing and services, with CPI Year-on-Year (Y/Y) forecasted to remain at 3.4%. The PPI report, due this week, is also anticipated to show a decline in both PPI Month-on-Month (M/M) and Core PPI M/M. The services component of PPI has risen since January 2024, returning to pre-COVID levels. Traders and the Fed navigate the uncommon scenario of the CPI report’s release during the FOMC meeting, adding another layer of intrigue to the market.

The Bank of Japan (BOJ) is expected to maintain its current interest rate amidst the Japanese Yen’s historic lows. Quantitative tightening (QT) could potentially impact the market, and traders will be watching closely for any signs from the BOJ. Despite the interest rate differential between the US and Japan, carry trades on USD/JPY remain attractive to some investors, despite inherent risks.

EUR/USD Technical Analysis

Looking at the EUR/USD pair’s technical analysis, price action has broken out and closed above the upper border of a narrowing formation on the daily chart. The recent Non-Farm Payroll numbers surprised the markets with higher-than-expected figures, leading to throwbacks in price action. The price is currently below three moving averages – EMA9, MA9, and MA21 – while the RSI7 indicator is in oversold territory. The potential double or triple bottom formation could be invalidated if price action fails to stay above the support line. On the weekly chart, price action remains below the lower border of an ascending channel, indicating resistance at its annual pivot point.

The USD/JPY pair has maintained a decade-long uptrend, influenced by the economies of the USA and Japan. Despite a recent break below the channel’s lower border in late 2023, price action has been attempting to re-enter the channel. After a failed breakout following the Bank of Japan meeting in 2024, price action has faced resistance at multiple levels, including moving averages and weekly pivot points. The negative divergence between the recent upside move and tick volume suggests a potential reversal in price action.

Market participants are eagerly awaiting the FOMC interest rate decision and key economic indicators such as CPI. The Fed’s decision, along with potential policy shifts from the Bank of Japan, will significantly impact currency markets. Traders should monitor these events and indicators closely for trading opportunities while considering the broader economic context and geopolitical risks that may influence market movements.

Technical Analysis

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