This week is loaded with critical economic releases, keeping markets on edge. We have FOMC rate decisions, Nonfarm Payrolls, and inflation numbers, to name a few. This comes as investors remain divided on the FED’s rate cut path for 2024. Many analysts and investors see that the robust consumer spending and declining inflation are enough reasons for the FED to begin their rate cut cycle as early as March 2024. On the other hand, others are concerned about the risks, arguing that inflation may start rising again, derailing the robust consumer spending, thus suggesting that the first 25 bps rate cut may be better delayed till June or July 2024. The risks that may lead to inflation remaining high may arise for multiple reasons, including but not limited to shipping disruptions leading to higher costs and/or shortage of raw materials.
US inflation indicators continued their decline, bringing inflation closer to the FED’s target of 2%. According to the latest analyst surveys from Bloomberg Financials, the declining trend is expected to remain; the forecasted CPI (YoY%) for 2024 is 2.7% and 2.3% in 2025, down from its latest reading of 3.4% for 2023.
Source: CME Group
According to the most recent review of the CME FedWatch tool, 97.9% of market participants anticipate interest rates to remain at their current level of 525-550 for the meeting on January 31st, 2024, the expectation for a 25-basis points rate cut for the March 20th meeting is down from last week’s 50.0% to 39.0% today. As for the May 1st, 2024, Fed’s meeting, the percentage of two 25-basis points rate cuts dropped from 40.1% last week to 28.7%. The probability of two 25-basis points cuts for June 12th, 2024, FED’s meeting currently stands at 53.5%.
Daily Chart
Source: TradingView
- Price is trading within an ascending widening pattern; price action previously found support along the lower pattern border.
- It is back to trade along the extension of the exact borderline, where it found support on January 23rd, 2024. It is important to remember that the widening formation is part of a more considerable flag formation on the monthly/weekly chart.
- Candlestick patterns around the support level reflect indecision as markets await the FOMC.
- A confluence of support lies below the price action, represented by the lower pattern borderline, monthly and weekly S1 standard calculation.
- The price action broke and closed below EMA9, MA9, and MA21.
- The fast EMA9 and the SMA9 currently represent a confluence of resistance above the price action; the two averages also intersect with the weekly pivot point.
- The chart (red lines) highlights a positive divergence between price action and RSI. Price action made lower lows later in the downtrend, while RSI plotted higher lows and remained near its oversold levels.
4-Hour Chart
Source: TradingView
- Price action broke out and closed (Circle) below the lower borders of a preexisting narrowing formation with no pullbacks, followed by an attempt to form a widening formation. (Dark green lines)
- Price action trades within a slightly widening range (Highlighted), forming lower lows as it moves within the pattern.
- A positive divergence between price action and RSI is identified on the chart as prices continue to form lower lows while RSI is plotting higher lows. (Green lines) This is the same positive divergence previously mentioned on the Daily chart.
- Multiple bottom formations are within the widening pattern, and the baseline (Red line) lies just above the weekly pivot point of 1.0870.
- The price broke and closed above its EMA9 and MA9. However, it has yet to close above its MA21, which may act as resistance in case of any upside price move.
- Multiple 4-hour candles found support above the weekly S1 calculation of 1.0800, including multiple hammer formations.
- If the multiple bottom formation works out, it may open the way for price action to trade back above the pattern baseline, which, if it happens, may also lead the price to the pullback level of the narrowing formation (Blue Circles).
- A confluence of resistance lies at the pullback level represented by the narrowing formation lower border (Blue line), an uptrend line that began in November 2023 (Light Green line), and R2 standard calculation.
- RSI remains neutral and below its moving average.
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Moheb Hanna
