The Market Perspective: Gold Below 1,680; USDJPY Bearish Below 141.50
Through Wednesday's session, there was a noticeable downshift in productive bearish momentum following the most significant decline in broad risk trends in more than two years.
The market won't be able to gain traction going forward because of the focus paid to the FOMC rate decision and a wide range of central bank announcements next week.
The market reacted sharply and negatively to the US CPI announcement on Tuesday. For benchmarks like the S&P 500 and Nasdaq 100, the risk aversion we were led to registered the most significant single-day losses in more than two years. Suppose you have been following the expectations for monetary policy and fear recession. In that case, it is simple to understand how this quick reversal could lead to a cascade fall in sentiment. However, this "capitulation" is not very simple to cause. It is perhaps not surprising that embryonic risk appetite has waned in light of the inflation reading being resilient, even though it has not returned to record highs.
However, a complete unwinding of risk appetite is a whole different story. Although fear should continue to serve as a driver, more quantifiable fundamental approaches are more likely to slow down than to accelerate speculative momentum. It might be challenging to promote an honest trend in the near term with the FOMC rate decision, the revised forecasts, and Powell's press conference all scheduled for 18:00 GMT on September 21. Although systemic drives won't be readily supplied, this should not be interpreted as a prognosis for quiet markets.
The issue with gaining significant traction in these markets, whether through fundamentals, technical analysis, or market circumstances, is the expectation for a major event next week. The US CPI from Tuesday has dominated this week thus far (and probably to its conclusion). The inflation indicator has confirmed the continuation of rapid price growth, supporting the Fed's aggressive and continuous tightening regime and escalating concerns about a potential recession. The Fed has stated it is prepared to endure to bring prices under control.
It is crucial to monitor the market's delicately calibrated perception of Fed interest rate expectations given the overall hawkish assumptions on US risk-based assets and the Dollar. We are still pricing in a 1-in-4 possibility of a rate hike of that extreme scale, despite the probability of a 100-basis point rate hike (to 3.25 percent) having marginally decreased from Tuesday's post-CPI euphoria this session. Although this critical news is one month away, it is acceptable for the markets to interpret the data skeptically. Fed Funds futures have generally priced in a startling 75 basis point hike at the following meeting. However, opinions from more conservative policy members could still come into play in the future.
The crosses based on the Japanese Yen have some of the most dramatic market performances regarding interest rate differentials. While other crosses experience the thirst for the anti-Japanese currency stoked by risk aversion, USDJPY is not far from high since it was last tagged back in 1990. After failing to form a new leg higher this week, the pair has leaned against the short-term trendline's support. The main future concerns include risk trends, relative growth projections, and monetary policy disparity. That being said, in the event of genuine risk aversion, expect the cash to flow into the active US markets, but, in this scenario, Japanese traders will also be compelled to deliver.
It is not unexpected that the market's anticipation condition is permitted to run rampant to balance its natural haze and the expected top event risk starting in less than a week. Even without considering the seasonal effects on volume, volatility, and market movements, it makes sense to anticipate strong surf. The docket has disappointed us greatly, but the chart patterns are impressive. Although there is only a 30 percent chance of a rate increase of 100 basis points at the upcoming meeting, this possibility might significantly lower confidence. However, the market's willingness to review and comment on recent policy modifications demonstrates that there are various time frames.
They are closely monitoring the volatility of Dollar-based pressure points. Recently, the US dollar has shifted to reviews from other countries. Naturally, a giant banner is the focus of promotion, but the lift appears to be the more popular option. Rates are not the only factor to be taken into account, either. If other travelers don't risk quantile-following, the possibilities from these markets can be a little more singular.