The FED meeting could tip the balance of the markets

March 17, 2021 14:30

The US markets were disrupted by growing fears of a possible rebound in inflation, causing an increase in US bond yields and instability, mainly on the Nasdaq. The upcoming Federal Reserve meeting and subsequent press conference with Jerome Powell, has the eyes of the financial markets as this could tip the balance in one direction or another.

Given that no changes are expected in interest rates, investors will mainly focus on the rhetoric and possible measures related to both inflation and the IRRs of bonds, as a tepid response to inflation could increase expectations that this could skyrocket in the coming months, possibly dragging bond yields once again. 

Some analysts point out that a rise in bond yields of up to 2% could cause a drop of up to 20% on the Nasdaq.

Therefore, some investors see today’s meeting as a critical situation, since Jerome Powell, on several occasions, has repeated that recovery is still far in the distance and flexible economic policy is still necessary.

In recent days, we have been able to observe how the increase in yields on US bonds has driven the dollar index against other currencies, so today’s meeting could also give us clues to where this currency can move if it finally the Federal Reserve announces measures to control IRRs.

Technically speaking, if we look at the daily chart of the US dollar index we can find that the price is currently in a bullish channel after hitting lows at the beginning of the year at $ 89.21.

This channel is taking the price close to its 200 session average, so it is interesting to see if the price finally decides to face this important resistance level. During the last months, the price has followed a clear downward trend, so the breakdown of this level could confirm a possible change in trend.

Source: Admiral Markets MetaTrader 5. Daily chart of the dollar index. Data range: from December 5, 2019, to March 17, 2021. Prepared March 17, 2021, at 12:10 CET. Keep in mind that past returns do not guarantee future returns.

Price evolution in the last 5 years:

  • 2020: -6.42%
  • 2019: 0.34%
  • 2018: 4.26%
  • 2017: -10.22%
  • 2016: 3.59%

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Source: https://admiralmarkets.com/analytics/traders-blog/book-federal-inflation

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