Pre-Market: No Relief for Bulls Before the Likely Rate Hike

As bond markets remain convinced about tonight’s interest rate hike by the Fed, giving close to 100% chance for the 0.25% move by the central banks. The real question is the total number of hikes in 2018, and for now, the predictions range from 2-5 which is an unusually wide range, pointing to a possibly violent reaction by the market in the case of a strong hint form the committee lead by a new Chair.

2-Year Treasury Yield, 4-Hour Chart Analysis

Jerome Powell has been leaning hawkish in the first weeks of his tenure, staying rather neutral during the volatility explosion in February, and sticking healthy growth, normalizing inflation narrative that drove the stable increase in Treasury yields and contributed to the start of the current global correction.

Yields are holding up near yesterday’s highs, and traders should focus on the short-end of the curve tonight (the 2-Year yield is a good proxy), as the reaction of the bond market will be crucial for all asset classes.

Nikkei Japanese Index, 4-Hour Chart Analysis

Stocks experienced a weak bounce yesterday after a bearish Monday, but Asian and European markets turned lower again today amid the renewed trade chatter. China reacted Trump’s tariff threats, and although Xi Jinping, the now “forever” president has been measured in his response, risk assets sold off , with most of the action once again being concentrated in forex markets.

Dow Futures, 4-Hour Chart Analysis

That said, equities also are also drifting lower in choppy trading, and US stock futures continue to show relative weakness in the previously leading Nasdaq, while Europe is still looking worryingly weak too. A lot can change tonight, but looking at the bearish charts of the laggards, it would take a landslide to change the short-term trend for more than a short-covering rally.

Dollar Pulls Back as Pound Remains Strong

EUR/GBP, 4-Hour Chart Analysis

The US Dollar is slightly lower after yesterday’s broad rally in the currency, with the Yen, the Euro, the Great British Pound all gaining ground compared to the Greenback. The overbought USD/CAD pair also dipping lower following an encouraging turn in the US-NAFTA talks, while the rally in commodities is helping the Loonie today too.

The Pound’s strength is especially apparent against the Euro, as the EUR/GBP pair has been steadily falling in the last two weeks, now trading very close to the January lows as the Brexit talks continue to show progress. Today’s mixed British Employment Report also boosted the currency, as investors focused on the healthy wage growth that beat the consensus estimate by a wide margin.

We will return with a quick look at the FED’s rate decision and monetary statement right after the release at 2 PM EST (6 PM GMT).

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.