Nasdaq 100 Retreats as Fed Hints at More Tightening

American stocks wavered on Tuesday as the Federal Reserve prepared to accelerate its tightening process. In a statement, Lael Brainard said that the bank will be aggressive in its bid to combat inflation. In addition to a 0.50% rate hike, she said that the Fed will begin a rapid reduction of its $9 trillion balance sheet as soon as in May. Further, she said that the bank was prepared to take stronger actions when it comes to tightening policy. She joins several other Fed officials who have warned about the need for more aggressive rate hikes. Still, with the yield curve inverting, the biggest challenge for the Fed is that higher rates could lead to a recession.

The euro declined sharply as geopolitical events between the Eurozone and Russia accelerated. In a statement on Tuesday, Brussels said that it was ready to launch new sanctions on Russia. The new restrictions would see the bloc ban coal imports and closure of its ports to Russian vessels. The bloc will also ban transactions with four of its biggest lenders. Other restrictions will be on Russian transport operators from the EU. Still, there are concerns that these restrictions will also affect the EU as its energy costs jump. As such, analysts expect that the EU will see a recession in the coming months.

The US dollar rose slightly in the overnight session after strong US services PMI data. According to the Institute of Supply Management, the pace of growth in the services sector increased in March as the impact of Covid faded. The PMI rose to 58.3 from the previous 56.5. Still, most service providers are also being impacted negatively by the ongoing supply chain challenges and costs. New orders, backlogs, and hiring rose in March Later today, the US will publish the latest oil inventories numbers while the Fed will release its minutes.

EURUSD

The EURUSD pair made a bearish breakout ahead of the new EU sanctions on Russia. The pair fell to a low of 1.0920, which was the lowest level since March 11. It declined below the support shown in green. At the same time, the pair dropped below the 23.6% Fibonacci retracement level and the 25-day moving average. Therefore, it will likely keep falling now that bears have prevailed.

XAUUSD

The XAUUSD pair remained in a tight range in the overnight session. It is trading at 1.926, where it has been in the past few days. This price is substantially lower than the YTD high of 2,070. It is also consolidating along the 25-day moving average while the Relative Strength Index (RSI) has moved to the neutral level of 50. The pair will likely remain in a consolidation phase ahead of the upcoming Fed minutes.

EURCHF

The EURCHF pair declined as Eurozone conditions worsened. The pair moved to a low of 1.0147, which is significantly lower than the March high of 1.0384. It has moved below the important support level at 1.0190. Further, the pair has declined below the 25-day and 50-day moving averages. Therefore, it will likely keep falling as bears target the support at parity.

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