The long expected Federal Reserve (Fed) meeting this week brought some positive tunes to markets as interest rates were lifted only by a quarter of percentage point. As justification for this decision, the Fed referred to geopolitical factors as Russia continues to scrape Ukrainian cities. The S&P 500 broad market index rose to 4400 points.
Fed’s tactics are now clear as U.S. monetary policymakers, except for St. Louis Federal Reserve President James Bullard that voted to raise interest rates by 0.5 percentage point, decided to ignore blistering inflation and turned to a “wait and see” mode. “As we emphasize in our policy statement, with appropriate firming in the stance of monetary policy, we expect inflation to return to 2%, while the labor market remains strong,” the front man of the Fed Jerome Powell said.
With his words in mind investors may believe that the Fed has once again changed its position as it now supports markets, but not the economy. So, inflation is ready to spiral. Such a decision may seem to be more concentrated on the short term rather than the long-term perspective. But for the moment the Fed conciliated investors and prevented a further market plunge.
The technical picture for the S&P 500 index changed to the upside with the targets at 4600-4650 points. But it could be too risky to join this rally even with a clear upside signal that emerged at 4370 points. It would be wise to omit this opportunity considering extreme uncertainty in the markets and geopolitical risks.
U.S. President Joe Biden and his Chinese counterpart Xi Jinping will have a direct talk on Friday. They would certainly discuss Ukraine. The Chinese position on the matter is not yet clear, so “wait and see” tactics could be the best option.
Brent crude prices were siting close to $100 per barrel this week amid “progress” in Russian-Ukrainian negotiations and COVID-19 outbreaks in China. However, crude prices were heading up at the end of the week with a possible upside scenario with the targets at $160-180 per barrel. Such a scenario is too risky, so it is better to avoid the rally before a clear upside signal emerges.
Gold prices are hovering around the strong support level at $1920-1930 per troy ounce. In case of a downside prices may fell to $1840 per ounce with a possible further plunge to $1750-1760 per ounce by the middle of April. This scenario would be eliminated in case of rising tensions over Taiwan. U.S.-China talks would be interesting in this regard too.
EURUSD changed its pattern to the upside with the target at 1.13000-1.14000. However, some technical indicators point to a possible downside below 1.08000. So, closing orders at 1.10450 or holding them would not be a mistake.
GBPUSD has also changed its pattern to the upside with a target at 1.34000-1.35000. But the pair is at risk of a downside too. So, any opening of positions in such a contradictory environment could be too risky.