Daily market analysis

Fed raise Rate by 75 bps

September 22, 2022

US stocks tumbled on Wednesday, suffering from heavy losses and extended their intra-day slide as traders were overwhelmed by the many headlines that followed the Federal Reserve decision. The American central bank hiked the benchmark rate by 75 bps to 3.25% as widely anticipated, meanwhile spurring volatility across the FX board and exerting bearish pressure on equity markets. The Fed Chief Jerome Powell was cautiously optimistic about economic progress and has signalled even more aggressive hikes than investors had envisioned, as he said that Fed officials were strongly resolved to bring inflation down to the Fed’s 2% goal and will keep at it until the job is done. Officials forecast that rates would reach 4.4% by the end of this year and 4.6% in 2023.

In the Eurozone, market sentiment was hit by rising geopolitical tensions as Russian President Vladimir Putin announced a mobilization of reserve forces to support the Ukraine war. EU member states have also held a meeting to discuss a coordinated response to the continuation of the war.

The benchmarks, S&P 500 and Dow Jones Industrial Average both retreated sharply on Wednesday as the S&P 500 extended its plunge from a January record to more than 20%. The S&P 500 was down 1.7% on a daily basis and the Dow Jones Industrial Average also dropped lower with a 1.7% loss for the day. All eleven sectors in S&P 500 stayed in negative territory as the Consumer Discretionary and the Communication Services sectors are the worst performing among all groups, losing 2.37% and 2.29%, respectively. The Nasdaq 100 meanwhile declined the most with a 1.8% loss on Wednesday and the MSCI World index was down 1.5% for the day.

Main Pairs Movement
The US dollar surged higher on Wednesday, preserving its upside momentum and extended the rally towards the 111.0 mark in the late US trading session following the interest rate decision by the Federal Reserve. Fed’s Powell has announced a third consecutive rate hike by 75 bps to tame inflation sooner, which provided strong support to the safe-haven greenback.

GBP/USD suffered daily losses on Wednesday with a 0.97% loss as the cable licked Fed-linked wounds at a 37-year low under the 1.1300 mark after a volatile day. On the UK front, UK Business Department announced that it would cap the cost of electricity and gas for businesses. Meanwhile, EUR/USD coming under bearish momentum and approaches multi-year lows near the 0.982 mark amid the stronger US dollar across the board. The pair was down almost 1.30% for the day.

Gold advanced higher with a 0.53% gain for the day after refreshing its daily top above the $1,687 mark during the US trading session, as the safe-haven metal staged a moderate rebound after a volatile session amid Fed’s monetary policy meeting. Meanwhile, WTI Oil dropped further with a 1.24% loss for the day after retreating from a daily high near the $86.6 area amid fears of energy demand. However, Russia’s mobilization of troops also renewed supply fears.

Technical Analysis

EURUSD (4-Hour Chart)

The Euro sank 1.33% against the U.S. Greenback as the Fed announced its highly anticipated interest rate decision. The Fed has announced a 75 basis point increase on its benchmark interest rate, the fourth interest rate hike for the year. The magnitude of the rate hike came in alignment with market expectations; however, Fed Chair Jerome Powell’s speech has once again conveyed the central bank’s determination to bring inflation down by all means necessary. The Fed has also raised its terminal rate projection to 4.25% ~ 4.5%. Dissecting Fed Chair Jerome Powell’s speech, markets should expect at least one more 75 basis point rate hike before the end of the year.

On the technical side, EURUSD has broken below our previously estimated support level of 0.9902 and is heading towards the next level of support at around the 0.98 price region. Parity has now become the short-term resistance for EURUSD. RSI for the pair sits at 35.73, as of writing. On the four-hour chart, EURUSD currently trades below its 50, 100, and 200-day SMA.

Resistance:  1.0011, 1.0055

Support: 0.9902, 0.98

GBPUSD (4-Hour Chart)

Cable witnessed a 1% drop over the course of yesterday’s trading. The 75 basis point interest rate hike induced a surge in demand for the U.S. Greenback. The Dollar index rose more than 1% and broke above 112 at one point. The Fed raising terminal interest rate projections has further pushed implied yields upward. However, the BoE is scheduled to release its interest rate decision during today’s European trading session. A 50 basis point interest rate hike is expected from the BoE, however, policymakers could be torn between dismal economic projections and price pressure from the energy sector. Hiking rates is certainly more difficult for the BoE, relative to the Fed, as recent economic data releases from the U.K. has not supported the rhetoric for a hawkish BoE.

On the technical side, GBPUSD has broken below our previously estimated support level of 1.1463 amid an extremely strong Dollar. Our estimated secondary level of support for Cable sits at 1.12. RSI for the pair sits at 31.79, as of writing. On the four-hour chart, GBPUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1.1561, 1.1854

Support: 1.1463, 1.12

XAUUSD (4-Hour Chart)

Gold rose against the Dollar over the course of yesterday’s trading. A number of factors allowed the non-yielding metal to rise against the surging Dollar. First, Russian president Vladimir Putin’s announcement for partial mobilization of the Russian military force has sparked a flight to gold as market participants fear a worsening of the Russian-Ukraine War. Second, Fed Chair Jerome Powell’s speech after the interest rate announcement seems to indicate that the central bank is no longer aiming for a “soft landing” and a recession could provoke demand for the precious metal. However, market participants should note that the Fed has upwardly revised its year-end terminal interest rate target and its long-term inflation target, thus Gold, the non-yielding asset, could still fare worse against the Dollar over a longer horizon.

On the technical side, XAUUSD successfully defended our previously estimated support level of $1,660 per ounce. Secondary support for the yellow metal rests at the $1,600 per ounce price level. RSI for the pair sits at 37.74, as of writing. On the four-hour chart, XAUUSD currently trades below its 50,100, and 200-day SMA.

Resistance: 1740, 1800

Support: 1660, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDFOMC Economic Projections02:000
USDFOMC Statement02:00
USDFed Interest Rate Decision02:003.25%
USDFOMC Press Conference02:30
JPYBoJ Press Conference14:30
CHFSNB Interest Rate Decision15:300.5%
CHFSNB Press Conference16:00
GBPBoE Interest Rate Decision19:002.25%
USDInitial Jobless Claims20:30218K