FOREX
The US dollar bounced back from multi-week lows, following the conclusion of the Federal Reserve’s June meeting. As expected, the US central bank paused, breaking an uninterrupted cycle of ten consecutive rate hikes. But still, the dollar rose, as the Fed’s announcement came across as hawkish, telegraphing the intention to reignite its monetary policy tightening later in the year. This mix of pausing but at the same time promising more hikes later in the year, and probably more than one, left some observers wondering what really underpins the Fed’s decision-making. It seems as though, having previously set expectations for a pause in June, the central bank was unwilling to respond to a string of strong economic figures with another hike, and tried to compensate by adopting a markedly hawkish stance; a behaviour that contradicts the principle of being data dependent, and may be a sign of division amongst Fed officials. With expectations now set for two more rate hikes in 2023, with the first one likely to come in July, there may be scope for further short-term dollar gains.
Ricardo Evangelista – Senior Analyst, ActivTrades
Source: ActivTrader
EUROPEAN SHARES
European shares drifted lower shortly after the opening bell on Thursday, extending losses registered at the end of the US trading session yesterday following a Fed meeting that surprised investors.
The FOMC held rates unchanged yesterday, confirming the tightening pause many were anticipating, but also sent mixed signals and hints of a more hawkish stance in future meetings.
The "dot plot" release has shown investors that most Fed officials are still expecting another 0.5 basis point hike by the end of the year, providing a more hawkish stance than expected, as traders and analysts were only anticipating another hike of 0.25bp before 2024.
This news has been difficult to assess for many, and has brought more pressure towards riskier assets such as stocks.
Market volatility is expected to continue, and risk appetite may shift during the afternoon, particularly for EU shares, as attention turns to the ECB's rate decision and President Christine Lagarde's press conference. The STOXX-50 index pulled back towards 4,360.0pts following its failure to clear the 4,380.0pts level, mostly led lower by basic materials and utility shares.
A break-out of the first available support level at 4,355.0pts could extend the current correction deeper, while a clearing of the 4,380.0pts resistance should quickly lead the markets towards its all-time high above 4,420.0pts, which won't be the likely scenario on the very short-term due to the lack of market catalyst and rising monetary uncertainty.
Pierre Veyret– Technical analyst, ActivTrades
Source: ActivTrader
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