Weekly Market Outlook: FOMC & Inflation Figures in Focus
After last week’s US inflation figures recorded the highest level since 1982, all eyes will now be on the Federal Reserve’s FOMC meeting minutes release on Wednesday. The Fed fund futures market is now pricing in a higher chance of a half-point rate increase in March.
The US dollar whipsawed on the news but ultimately ended the week with only a small increase. With the US dollar struggling to rally on good news, this week will be a good test of its true strength.
As inflation figures affect central bank policy, they can be market movers. That’s why Wednesday’s UK and Canada CPI (consumer price inflation) figures will also be widely watched by market participants.
You can learn more about some of the global themes affecting the markets in this selection of education articles.
- How to Hedge Against Inflation
- How to Trade the Fed Rate Decision
- Trading Strategies for 2022
- How to Trade the US Dollar Index
Weekly Forex Calendar
Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admirals.
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Trader’s Radar – US FOMC Meeting Minutes
On Wednesday 16 February at 7.00 pm GMT, the Federal Reserve will release its latest FOMC (Federal Open Market Committee) meeting minutes. This is a detailed report of the last meeting of the FOMC members which provides insights into how the economy is performing and the reasoning behind their decisions regarding where to set interest rates.
Last week’s inflation figures came in at 7.5% which is the highest since 1982. This has now caused the market to price in six and a half interest increases for the year, with a very high probability of a double hike in March.
However, many analysts are now forecasting that the US economy has peaked as supply chain disruptions normalise and the potential for government spending to become more limited if the Democrats lose Congress in the mid-term elections in November.
The US dollar index has been much more range based this year, as other central banks also start the process of increasing interest rates. The market was also surprised by a shift in policy stance from the European Central Bank which helped the euro lift higher but failed to gain any follow-through.
Source: Admirals MetaTrader 5, USDX, Weekly - Data range: from 8 Apr 2018 to 12 Feb 2022, performed on 12 Feb 2022 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The weekly price chart of the US dollar index shown above highlights a trading range that has developed since late November 2021. While there have been some big moves up and down, the price action has failed to break out and trend.
With other central banks also increasing interest rates, investors have a choice of where they can position themselves for future growth. However, the choice is not clear which is why many US dollar currency pairs are currently range based.
However, if the price can break through the range highlighted above between the two black horizontal lines from November 2021 to now, then we could be in for a long term trend.
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Corporate Trading Updates and Stock Indices
The recent rally in global stock market indices came to a halt last week with many closing the week in the red. The S&P 500 and Dow Jones 30 both stalled at around the 50% retracement level from the most recent drop at the start of the year. Even European indices such as the CAC 40 exhibited similar characteristics.
This now means we are at a critical turning point for global stock market indices. Could this be the lower high that starts a bigger move lower or will the price rally back up and continue to record highs?
The stock market sell-off at the beginning of the year was down to the threat rising interest rates will bring to corporate borrowing costs and profit margins. With most central banks around the world starting to increase rates it could be a rocky road for stock indices.
Source: Admirals MetaTrader 5, SP500, Daily - Data range: from 29 Apr 2021 to 12 Feb 2022, performed on 12 Feb 2022 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. Past five-year performance of the S&P 500: 2021 = 26.99%, 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%
The S&P 500 stock market index, shown above, highlights a recent double top price action pattern, retesting the ascending support line from the lows of 11 May 2021 and 4 Oct 2021. Price broke through this level in January 2022 and has now retested the same level which has now become resistance.
In the short-term, it seems sellers may be in control considering the failure for the price to break through this resistance level and make a higher high cycle. However, we also know that price has recently bounced from a long term horizontal support level around 4,280.00.
Therefore, price action is now trading in between these long term support and resistance levels. A break on either side could see a long term trend develop. In the meantime, traders may look to the lower timeframes for clues on who is in control of the market as a way to still capitalise on its volatility.
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