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Market Volatility Spikes as Fed Confirms Restrictive Policy

ByGregor Horvat
Published 05/02/2024, 05:30 AM

Hey traders!
We experienced a busy and volatile trading session yesterday, particularly towards the end of the US trading hours when Powell highlighted a restrictive policy in the US. Notably, he announced the reduction of bond purchases from $60 billion to $25 billion starting on June 1st. This decision reflects a strategic move to slow down the economy slightly, aiming to help bring inflation down. Achieving this goal could bring the Fed closer to potential rate cuts later this year.

Despite this tightening, it's important to note that there are no considerations for hiking rates currently, suggesting that the current rates could be maintained for an extended period. However, whenever economic data begin to show signs of weakening, there will likely be increased speculation about impending rate cuts, which could significantly influence market dynamics. During yesterday's session, surprisingly, we observed US yields declining, while US stocks rallied—though this was short-lived as they reversed back to the downside post-press conference. Regarding the dollar, the Dollar Index also had an interesting day; it failed to break above the 106.51 high, indicating that a wave 4 correction might still be in play. This correction could find support around 105.30, at wave c=a fib support..

Also, its crucial to understand that even if the Dollar Index experiences a bounce, a lot could depend on euro, especially if the ECB continues to hint at a potential rate cut before summer. This interplay between US monetary policy and ECB signals will be key in driving market movements in the coming weeks.

Grega

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