empty
 
 

Forex Analysis & Reviews: What will stop the bulls?
time 07.09.2022 11:29 PM
time Relevan hingga, 21.09.2022 05:48 PM

Financial conditions have tightened over the past three weeks: stocks have fallen, corporate yield spreads have widened, and mortgage rates have risen to nearly 14-year highs. Could the Federal Reserve take this as a signal to loosen its grip, or are we in for further tightening of monetary policy? Let's figure it out.

What will stop the bulls?

This image is no longer relevant

The S&P 500 index is now 14 trading days and 9.2% in its fifth mini-drawdown of the year. The first four drops lasted from 10 to 36 trading days and decreased by 9-16% of the benchmark value from peak to low. Thus, this decline is already in the range in which a short-term reversal is possible, if not inevitable. Obviously, traders will want to redeem this failure.

Unfortunately, now this situation is such that either the bulls will retreat from the market, or the Fed will have to introduce a new interest rate threshold in order to dampen inflation. Will traders stir up a hornet's nest before the Fed's policy meeting on September 20-21?

Financial market indicators track not only stocks, but stocks were the most visible source of defiance while the Fed was trying to curb demand to tame the highest inflation rates in four decades.

Monetary policy works partly through financial markets, because the combination of higher borrowing costs and lower asset prices makes consumers and businesses less likely to spend, so these two institutions are tightly linked to each other. And although the Fed does not directly focus on financial conditions, the members of the Federal Open Market Committee, who set interest rates, closely monitor them, using the behavior of Wall Street as a kind of litmus test. And so far, the mood of FOMC members clearly indicates that they are unable to curb the markets.

So, the president of the Federal Reserve Bank of Minneapolis, Neil Kashkari, said that he was not thrilled that the stock market was growing after the FOMC's last meeting.

Recently, conditions have been developing in the direction desired by the US central bank, which was facilitated by a push from Fed Chairman Jerome Powell.

In his speech on August 26 in Jackson Hole, Wyoming, he opposed most of the bullish narratives that supported risky assets, arguing that even with the slowing economy, the central bank does not intend to cut rates in the near future. Federal funds futures now imply that the central bank will raise the upper bound of the target rate to 4% by February. This is a major additive at the current level of 2.50%. So even if he starts to change course, he can only cut rates by a paltry 25 basis points in 2023.

As for this month, the debate is focused on whether the Fed will raise rates by 50 basis points or 75 basis points. Futures suggest a three-quarters probability that the central bank will choose the latter.

There is an important point in this game. Whether the Fed has tightened monetary policy enough depends on how you understand financial conditions.

The GS Goldman Sachs Group Inc. US Financial Conditions Index returned to the lowest levels of the year, helped by an increase in the yield of 10-year Treasury bonds. On the other hand, the Bloomberg US Financial Conditions Index has tightened, but remains much weaker than at the beginning of July. The Goldman Sachs Index gives significant weight to 10-year bond yields, while the Bloomberg Index focuses on credit spreads and attaches more importance to equity-related components. In any case, the Fed should like the trajectory.

These are mainly technical factors that can attract equity investors and potentially facilitate Powell's decision. In other words, the stock has fallen so much that there will definitely be short sellers who do not want to risk their profits, and traders with fast money who see profitable deals. This creates the conditions for a new wave of sell-offs and demand, although it will not necessarily be a problem for the Fed, unless everything snowballs, as it did in July and August, and real money begins to perceive the rally as something longer.

What factors should I pay attention to?

The 14-day relative strength index — a handy momentum indicator that signals when assets and indices may be "overbought" or "oversold" — is approaching the key level of 30, indicating the latter.

The S&P 500 has a "key support level" of around 3,900, as Bloomberg Intelligence chief strategist Gina Martin Adams and senior associate analyst Gillian Wolfe pointed out on Friday. (This means that trading patterns suggest that some investors considered these levels a good buy at the beginning of the year, so perhaps they will return to this field again).

The CBOE stock put/call ratio, reflecting the ratio of bearish bets in the options market to bullish, returned to its highest level since June. Taken as an opposite indicator indicating that the market is at the bottom, this ratio indicates to some people that the gloom is exaggerated and a reversal may be close.

You can believe these signals or not, but many market participants believe, which makes them a signal for predicting a short-term rebound. And of the macroeconomic indicators that can convince the bulls, there is not so much top-level fundamental data for trading - until the decisive release of the consumer price index on September 13. S&P 500 earnings per share increased by 10% to $212, but there won't be much change.

In general, a lot comes down to moods and a factor that is even more difficult to predict — recklessness. Perhaps only now I am beginning to understand the whole humor of the situation: bulls will buy as long as they have money. And they have money thanks to two years of credit thaw from the Fed. And although many have already been shaken up, it seems that retail investors have decided to act according to a simple scheme: laying down the risk of a Fed rate hike in advance, they plan the next failure... and they buy it back. There is one big disadvantage in this scheme. The base rate affects the cost of the loan. And even if the bulls are now managed solely by their stocks, which is unlikely, the real sector may be unable to borrow at a huge interest rate.

And now I wonder: maybe the real crisis has not yet come? While businesses and individuals are able to do without loans (and social payments related to the repayment of the difference in the cost of electricity allow this to some extent), it is possible that we have not even entered the acute phase yet. And only when own funds really become scarce, in other words, when currencies depreciate even more, then it can be considered a crisis.

But will it happen? Even if inflation slowly starts to slow down? Of course, a further slowdown in inflation could help tip the scales in favor of a 50 basis point rate hike, but I think the question needs to be put more globally. Ultimately, if the bulls still have enough money, does this mean that they can continue to "donate" the real sector by investing in stocks? Not at all necessary. But there doesn't seem to be a way to avoid this. Earned and accumulated funds burn the hands of the bulls, forcing them to enter the market with new interventions. And until this money runs out, we will be in a situation of swinging the scales between the Fed and the bulls.

EURUSD
Euro vs US Dollar
Pilih timeframe
5
mnt
15
mnt
30
mnt
1
jam
4
jam
1
hari
1
minggu
Mulai trading
Mulai trading

Tinjauan analitis InstaForex akan membuat Anda menyadari sepenuhnya tren pasar! Sebagai klien InstaForex, Anda dilengkapi dengan sejumlah besar layanan gratis untuk trading yang efisien.

  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    GABUNG KONTES
  • Chancy Deposit
    Isi akun Anda sebesar $3000 dan dapatkan $1000 lebih banyak!
    Pada Februari kami mengundi $1000 dalam promo Chancy Deposit!
    Dapatkan kesempatan untuk menang dengan melakukan deposit sebesar $3000 pada akun trading Anda. Setelah memenuhi persyaratan ini, Anda telah menjadi partisipan promo.
    GABUNG KONTES
  • Trade Wise, Win Device
    Top up akun anda dengan dana minimal $500, daftar kontes, dan dapatkan peluang untuk memenangkan perangkat seluler.
    GABUNG KONTES
  • 100% Bonus
    Kesempatan langka untuk mendapatkan bonus 100% pada deposit anda
    DAPATKAN BONUS
  • 55% Bonus
    Ajukan bonus 55% pada setiap deposit anda
    DAPATKAN BONUS
  • 30% Bonus
    Raih bonus 30% setiap kali anda top up
    DAPATKAN BONUS

Recommended Stories

Bank of England terpaksa menaikkan suku bunga

Pelaku pasar memperkirakan lonjakan lagi pada Pound karena Bank of England kemungkinan akan menaikkan suku bunga hari ini karena inflasi yang terus-menerus tinggi di Inggris. Bank tidak punya pilihan lain

Jakub Novak 10:54 2023-02-02 UTC+2

EUR/USD. Fed belum menjadi sekutu dolar, meskipun sikap Powell hawkish

Pasangan EUR/USD, bereaksi terhadap hasil rapat Federal Reserve bulan Februari, menguji level resistance 1.1000 untuk pertama kalinya sejak April tahun lalu. Meskipun bull gagal menaklukkan angka ke-10 dengan impulsif, pasangan

Irina Manzenko 09:57 2023-02-02 UTC+2

Kenaikan suku bunga Fed yang agresif berakhir

Euro naik di atas 1,000 setelah Fed mengisyaratkan perubahan sikap kebijakan moneter mereka. Pernyataan mereka selama pertemuan kemarin lebih dovish dibandingkan Desember, dengan kenaikan suku bunga hanya 25 basis poin

Jakub Novak 09:48 2023-02-02 UTC+2

Apa yang akan terjadi pada perekonomian dunia?

Dalam pembaruan prospek ekonomi pada hari Selasa, Dana Moneter Internasional memperkirakan pertumbuhan ekonomi global sebesar 2,9% tahun ini dan pemulihan menjadi 3,1% pada tahun 2024. Meskipun pertumbuhan diperkirakan berada

Irina Yanina 08:31 2023-02-02 UTC+2

Apa yang diharapkan dari ECB pada hari Kamis setelah data inflasi yang lebih dingin

Inflasi zona euro jauh dari perkiraan sebelumnya, menyoroti perdebatan sengit di Bank Sentral Eropa tentang tingkat suku bunga puncak. Menurut data terbaru Eurostat, yang diterbitkan pada hari Rabu, inflasi mencapai

Andrey Shevchenko 07:39 2023-02-02 UTC+2

Emas berpotensi mencapai rekor tertinggi

Dan siapa bilang emas tidak melindungi dari inflasi tinggi? Ya, pada tahun 2022, logam mulia tidak mengesankan, paling tidak, karena harga konsumen di AS dan Eropa melonjak ke level tertinggi

Marek Petkovich 02:21 2023-02-02 UTC+2

Keputusan kebijakan FOMC dapat mendorong EUR dan GBP naik

Euro tidak ingin kehilangan kekuatan menjelang pertemuan kebijakan FOMC. Pembuat kebijakan cenderung melakukan kenaikan suku bunga moderat lainnya. Mengingat data inflasi dan data PDB yang dirilis baru-baru ini, komite penetapan

Jakub Novak 11:48 2023-02-01 UTC+2

Analis telah kehilangan kepercayaan pada dolar AS, dan ekspektasi untuk suku bunga Fed telah berubah

Mengenai suku bunga Fed, kita harus merefleksikan pada apa yang terjadi pada tahun sebelumnya, ketika regulator baru saja mulai memperketat kebijakan moneter. Asumsi regulator pada awal tahun mengasumsikan bahwa suku

Chin Zhao 10:12 2023-02-01 UTC+2

GBP/USD. Ikhtisar 1 Februari 2023

Pasangan mata uang GBP/USD memulai pekan baru dengan tidak menarik. Karena volatilitas menurun secara signifikan, trader telah mengadopsi strategi wait-and-see. Karena para pakar masih terbagi dengan tentang berapa banyak suku

Paolo Greco 09:07 2023-02-01 UTC+2

EUR/USD. Ulasan untuk 1 Februari. Apakah pasar bersiap untuk penurunan setelah rapat Fed?

Pasangan mata uang EUR/USD memulai minggu dengan semenarik mungkin. Trading hari Senin dan Selasa sebagian besar sesuai dengan satu sama lain.Volatilitas telah lama tertinggal dibalik ekspektasi, dan pergerakan terkini hanya

Paolo Greco 07:46 2023-02-01 UTC+2
Tidak bisa bicara sekarang?
Tanyakan pertanyaan anda lewat chat.