Fed Decision: Is 'Dovish Tightening' A Done Deal?
MaiMarFX | Mar 16, 2022 09:08
It’s decision day at the Federal Reserve. A quarter-point rate increase is widely expected, the first since 2018. The market’s focus will be on the Fed’s dot plot and if the dot plot projects more than six interest hikes this year, it would be a hawkish signal, resulting in a stronger US Dollar.
However, this decision is a tricky one for Fed Chair Jerome Powell since FOMC members have expressed divergent views especially against the background of uncertainties facing the global economy because of Russia’s invasion of Ukraine. Having mischaracterized inflation as “transitory” until November, the Fed would now have to signal an aggressive rate hike cycle that would have to start with an increase of at least 50bps today to regain some of its lost credibility. However, being an aggressive hawk is not an easy approach as it risks sending the U.S. economy into recession. Furthermore, Jerome Powell downplayed to Congress the likelihood of a 50bps hike today.
The other option and the more likely scenario today, is “dovish tightening”. A 25bps rate hike and conditional language about maximum policy flexibility on further rate hikes and on the balance sheet.
Whatever the Fed will decide, traders brace for heightened volatility around the decision and press conference at 18:00/18:30 UTC.
EUR/USD – Potential bear-flag to signal further losses ahead?
We are bracing for another leg-down towards 1.07, provided that the euro remains below 1.1060 and breaks below 1.0920. Bulls, in the short-term, will watch for prices above 1.1020 in order to buy euros towards 1.1060 and possibly even 1.11, but be warned, sellers may take the opportunity to jump in at higher price levels.
Our short-term trading ideas for today 16/3/22:
Long @ 1.1010, Short @ 1.0940 (SL 25, TP 100)
Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.
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