Markets Continue to Digest Hawkish Fed

It’s been another hugely volatile week as investors continue to take in the more aggressive tone from the world’s most powerful central bank.

Fed rate hikes are coming, and the impact is being felt across financial assets.

Market confidence has clearly increased in favour of a stronger USD and the greenback is on the charge again today, making new cyclical highs as we write. Futures markets are now pricing in a 31-basis point Fed hike at its mid-March meeting with some analysts speculating that we could see a 50bp move to kick off the tightening cycle.

The DXY index crossed above the previous high at 96.94, with a resistance zone standing at 97.72 which is the 61.8% Fib retracement level of the 2020 dollar slide and the June 2020 high at 97.80.

EUR/USD has fallen to a new cycle low this morning too, after closing at 1.1145. Next support in this pair comes in at 1.10023, the 78.6% retracement of the 2020 EUR/USD rally.

Apple ‘s upbeat earnings report may help the battered Nasdaq.

The world’s biggest tech company, and the one to hit a $3 trillion market cap first (remember that at the start of the year?), has boosted positive risk sentiment after it released record quarterly earnings revenue and better than expected profits after the US close last night. The iPhone maker also revealed a lighter hit than forecast from pandemic-related supply chain glitches, which have of course contributed to rampant inflation across the globe.

Apple shares have jumped 5% in pre-market trading.

The tech-heavy Nasdaq 100 has suffered this month in a downbeat start to the new year. Rising rates increase companies’ borrowing costs and lower the present value of forecast profits.

This tighter monetary policy has seen a major rotation out of speculative tech stocks, driving the index over 16% below its November all-time high.

Technically, momentum had looked very bearish once the index plunged through the 200-day simple moving average just above 15,000. Monday’s collapse and then reversal was a sight to behold, and the long-legged wick on the daily candlestick may tell us that a bottom is in place at 13,724. Buyers were able to push prices into the green on the close and above the previous April 2021 high at 14,073. The index has consolidated between here and the October bottom at 14,384.4 in recent sessions so the weekly close will be hugely significant for medium-term direction.

By Lukman Otunuga Senior Research Analyst

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