US30 Spooked by Hawkish Fed, Tests Key Technical Levels

US30 Analysis

Wall Street had not been harmed by the Fed's lift-off last month, as the central bank had opted for a well telegraphed and timid 25 basis points adjustment, but the prospects of further increases can create a challenfing environment.

Yesterday, Fed Governor Ms Brainard made some rather hawkish remarks which spoked markets and drove US Bond Yields higher. She said that inflation is "much too high" and getting it down is of "paramount importance", noting that the bank is ready to take "stronger action" if warranted, which was largely interpreted as hint for more aggressive rate hikes. Ms Brainard also commented on the balance sheet, seeing a "rapid pace" reduction which could begin as soon the next meeting in May. [1]

Markets also worry about economic growth given the tightening monetary environment, surging inflation, impact from the war in Ukraine and of the relevant sanctions against Russia. Adding to those worries, US 10 Year and 2 Year Yields inverted last week, a sign of potential upcoming recession, although today they normalized.

US30 dropped yesterday and today it extends losses, breaking below the 23.6% Fibonacci of its recent rebound and into the Daily Ichimoku cloud. This creates increased risk for a breach of the 38.2% level (34,195), although further decline below the lower border of the cloud (at around 33,750-00) may need fresh catalyst.

On the other hand, the Relative Strength Index (RSI) points to oversold conditions while and US30 tries to elicit support from the 200EMA (black line). As long as it can avoid daily closes below it, it remains at the driver's seat and can reclaim 35,000, although a move past last month's highs (35,398)may prove more difficult.

Markets will have another dose of Fed commentary as the minutes from the last policy meeting are released at 18:00 GMT.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 03 Jul 2022 https://www.federalreserve.gov/newsevents/speech/brainard20220405a.htm

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