Global indices close in the red as crude oil prices fall sharply

7 April 2022, 03:02

Market Focus

U.S. equities dropped on Wednesday as investors eyed more hawkish actions from key Fed members. It is suggested that more monetary policymakers are open to moving aggressively to raise interest rates and bring down demand amid persistently escalated inflation. The S&P 500 fell, adding to losses after it ended Tuesday’s session lower by 1.3%. The Dow Jones and Nasdaq also extended declines.

Fed officials have laid out a long-awaited plan to shrink their balance sheet by more than $1 trillion a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades. The roadmap for reducing the assets they bought during the pandemic was spelt out on Wednesday in the minutes of their March meeting when officials raised rates by a quarter-point. While the Fed debated going bigger, they chose caution in light of the uncertainty caused by Russia’s invasion of Ukraine, the record of their discussion showed.

In addition, “many” who attended the March 15-16 FOMC meeting viewed one or more half-point increases as possibly appropriate going forward if price pressures fail to moderate. Analysts saw this as evidence that officials now fear that they should have acted sooner against inflation and are now in a hurry to get their main rate — currently in a target range of 0.25% to 0.5% — up to neutral; the theoretical level that neither speeds up the economy nor slows it down.

Officials proposed shrinking the Fed’s balance sheet at a maximum monthly pace of $60 billion in Treasuries and $35 billion in mortgage-backed securities — in line with market expectations and nearly double the peak rate of $50 billion a month the last time the Fed trimmed its balance sheet from 2017 to 2019.

Main Pairs Movement

The Greenback regained strength on Wednesday as attention remained on the war in Eastern and hawkish central banks. The euro pair is trading below 1.0900, while Cable is hovering around 1.3070. Commodity-linked currencies are under strong selling pressure, with the Aussie settling at 0.7510 and the Loonie last seen at 1.2530.

US President Joe Biden announced an executive order which will ban new investments in Russia. European leaders, on the other hand, were unable to reach an agreement on banning Russian coal, although they said it was due to a technical issue and due for further discussion on Thursday. Meanwhile, European Commission President Ursula von der Leyen has said that any new sanctions against the Kremlin would not be the last.

Later that day, the US Fed unveiled the minutes of its latest meeting, which reassured market participants of its aggressive stance. Policymakers are determined to move the monetary policy to neutral “expeditiously.” Additionally, the statement reads: “participants also noted that depending on economic and financial developments, a move to a tighter policy stance could be warranted.”

As to commodities, gold prices held within familiar levels, and gold is now trading at around $1,924 a troy ounce. Crude oil prices were sharply down, undermined by the soft tone of Wall Street, now at around $97.00 a barrel. Global indices closed in the red, with US ones further weighed by FOMC meeting minutes.

Technical Analysis

AUDUSD (4- Hour Chart)

AUDUSD edged lower on Wednesday, failing to head further north from the highest since June 2021, around 0.7460. On the technical side, the outlook for AUDUSD remains bullish as the dip-buying should help limit losses. At the moment, 0.7500 holds the key for the bulls. If AUDUSD drops below the support level around 0.7500, then it will enter a temporarily consolidated phase in the range of 0.7471 and 0.7536. The RSI reading is currently hovering around the midline, showing the directionlessness of the currency pair. If the dip-buying can hold and defend the current support pivot, then AUDUSD is expected to resume its bullish trend. On the flip side, as the MACD lines are in the crossing section, any meaningful downside momentum might accelerate further south.

Resistance:  0.7640, 0.7700

Support: 0.7536, 0.7471, 0.7432

Gold (4-Hour Chart)

Gold extended consolidation above $1900 while being still unable to attract buyers or sellers in a limited intraday range. Further price action has eyes on the outcome of the FOMC meeting and the new sanctions from the US and the EU. From the technical perspective, the outlook of gold has limited bullish potential, offering a neutral stance at the time of writing. The RSI continues to hover around the midline, showing its lack of direction. Any meaningful upside momentum above $1951 will potentially turn gold bullish in the near-term. On the other hand, failure to defend $1923 will likely attract more selling pressure.

Resistance: 1951.78, 1974.4363

Support: 1923.7477, 1878.4351

EURUSD (4- Hour Chart)

EURUSD holds tight above 1.0900 ahead of the FOMC Minutes. From the technical point of view, EURUSD remains in a bearish stance as it continues falling below the ascending trendline in the near- term. On the 4-hour chart, EURUSD had a meaningful pullback after hitting the lower band of the Bollinger Bands. At the same time, the RSI has reached the oversold territory but turned flat within the negative levels afterwards, implying absent buying interest. The immediate support awaits at 1.0806.

Resistance: 1.0969, 1.1069, 101150

Support: 1.0806