MKT CALL: MACRO OVERVIEW:
- Fed price hikes proceed to climb, notably after Fed Chair Jerome Powell and Fed Governor Lael Brainard targeted on combating inflation throughout their nomination remarks.
- Gold costs have been clobbered as Fed price hike odds have risen, and now a false breakout situation is in play.
- The Turkish Lira is melting down for a wide range of causes – none of which might be resolved simply.
A New Week Brings New Greenback Highs
On this week’s version of MKT Name: Macro (previously The Macro Setup), we talked about how the Federal Reserve’s stance on combating scorching US inflation charges might have shifted, why the reversal in US inventory markets and gold costs are rooted in the identical catalyst, and the way geopolitical and coverage considerations are impacting each the Euro and the Turkish Lira.
For those who rewind the clock to the November Fed assembly, Fed Chair Jerome Powell talked about that the speed of tapering QE was solely set in stone for November and December, at a tempo of $15B/month. Implicitly, he urged that tapering might improve in early-2022 if knowledge warranted as a lot. In his remarks yesterday after being renominated for a second time period as Fed Chair, Powell, like Fed Governor Lael Brainard – who was nominated for Vice Chair – targeted on combating inflation as a high precedence.
Markets are thus behaving as if not solely will the Fed speed up its price of stimulus winddown, however may even transfer faster on rates of interest than beforehand anticipated. On the finish of final week, Fed funds futures have been discounting an 81% probability of a 25-bps price hike by June 2022; these odds have now risen to 97%.
The prospect of sooner tapering and a price hike ahead of in any other case anticipated is proving to be useful for the US Greenback – however hazardous for each US fairness markets and gold costs. Breadth has been poor in US inventory markets over the previous week or so, and the most recent flip in hypothesis across the Fed is a detrimental improvement near-term. For gold costs, it seems that a false bullish breakout occurred, placing into focus a transfer to the otherside of their multi-month consolidation.
*For commentary from Dan Nathan, Man Adami, and myself on the US Greenback (by way of the DXY Index), the US S&P 500, gold costs, Bitcoin, the Turkish Lira, amongst others, please watch the video embedded on the high of this text.
CHARTS OF THE WEEK
Eurodollar Futures Contract Unfold (DECEMBER 2021-DECEMBER 2023) [ORANGE], US 2s5s10s Butterfly [BLUE], DXY Index [WHITE]: Each day Chart (JANUARY 2021 to NOVEMBER 2021) (Chart 1)
GOLD PRICE TECHNICAL ANALYSIS: DAILY CHART (MAY 2019 TO NOVEMBER 2021) (CHART 2)
EUR/USD RATE TECHNICAL ANALYSIS: MONTHLY CHART (NOVEMBER 2007 TO NOVEMBER 2021) (CHART 3)
— Written by Christopher Vecchio, CFA, Senior Strategist
DailyFX supplies foreign exchange information and technical evaluation on the tendencies that affect the worldwide forex markets.