The FED's week: what to expect from the markets?
The trading week from September 16 to 20 is expected to be quite volatile and packed with macroeconomic events that will likely impact global financial markets:
1. USA: The main event will be the Federal Open Market Committee (FOMC) meeting on September 18. At the start of the previous week, the expectation was a 25 basis point rate cut, but as of September 13, sentiment shifted. Now, 50% of analysts predict a 50 basis point cut, which could put pressure on the dollar. However, it's important to remember that this rate cut expectation is already priced into the dollar and US markets. So, the actual market reaction could be quite different from straightforward expectations.
2. Europe: After a period of silence, speeches from European Central Bank (ECB) board members might provide more insights into future monetary policy. Additionally, the Consumer Price Index (CPI) for September will be announced on Wednesday, the 18th, with expectations of further inflation stabilization. You can read more about inflation here: https://t.me/nonefinancialadvice/204
3. UK: On September 20, retail sales data for August will be released, which may show a decline due to the economic slowdown. This could impact the British pound. The week will close with the release of the Producer Price Index (PPI). It's worth noting that the UK has also started lowering interest rates, so seeing positive inflation trends is crucial for continuing the favorable monetary policy.
The DXY has been consolidating for quite some time, just as high interest rates in the US have been maintained. Historically, periods of consolidation in the DXY have often preceded major financial crises:
1. 1972: A narrow range on the DXY led to an impulsive expansion in 1973. This was when the Oil Crisis hit, as OAPEC countries stopped supplying oil to the US and Western Europe, driving oil prices from $3 to $12 per barrel. Industrial nations dependent on oil faced a severe economic crisis, marking the largest oil crisis in history.
2. 1976: Another tight range on the DXY led to a sharp decline between 1977 and 1978, as the index dropped from 105 to 82, the lowest point at that time. This was triggered by rising interest rates and efforts to recover from the 1973 crisis.
3. 1979: A narrow DXY range coincided with the Energy Crisis. The US and Western Europe faced significant oil shortages, leading to economic stagnation and the emergence of the term "stagflation" — a combination of stagnant growth and inflation. This period marked the start of a 10-year bullish DXY trend.
4. 1996: A narrow DXY range followed by the 1997-1998 Asian Financial Crisis, which severely impacted Asian economies. During this period, the dot-com bubble also inflated, peaking in 2000. The 1996 range forecasted this series of events, and DXY surged until 2006-2007.
5. 2008-2013: During the Great Recession, the DXY consolidated again, and the tight range in 2012-2013 led to an impulsive rise from 2014 to 2016, as the Euro weakened after Russia's invasion of Ukraine.
6. 2019: A narrow DXY range followed by the 2020 COVID-19 recession triggered a DXY rally in 2021-2022, accompanied by global economic events. Stock markets dropped by 30%, unemployment soared, the energy sector destabilized, and the global oil market faced a collapse.
7. 2023-2024: The DXY is once again in a narrow range, amidst economic slowdown post-COVID-19 and the ongoing war in Ukraine.
What’s next?
History shows that these tight ranges often lead to major expansions in financial markets and economic upheaval. While we can't predict the future with certainty, we can prepare for what's ahead. The years 2025-2027 could be marked by significant market swings, offering great opportunities for both investing and trading.
(Source: https://t.me/CryptologyKey)
Since the rate cut has already been priced into the DXY, the index is currently hovering near the lower end of its daily range.
https://www.tradingview.com/x/IFodqxz1/
In my view, we'll stay within the current range until Wednesday when the US interest rate decision is made. Until then, I’m expecting a local upward move, either towards the middle of the range (in the worst case, 101.200 / 101.365) or to the upper boundary (around 101.600).
https://www.tradingview.com/x/PCats2Pp/
Since I’m expecting a local rise in the dollar index, I’m planning for an opposite reaction in the euro and a pullback to test previous volume levels. I’m anticipating a short position from the test of Friday's Point of Control (POC) range (1.10805-1.10880 on 6E / 1.10815-1.10920 on EURUSD) down to the lower volume levels (1.10515-1.10480 on 6E / 1.10545-1.10415 on EURUSD).
On Wednesday, I plan to look for a long position on the euro based on the Eurozone inflation data and the outcome of the FOMC conference.
As of September 15, 2024, the oil market is facing significant challenges. The main factors behind the recent drop in oil prices have been weak demand in China and worsening global economic conditions. Brent crude has fallen to $70 per barrel — its lowest since late 2021, while WTI futures are hovering around $65. A major reason is OPEC’s revised demand forecast, which has been lowered due to China’s slowing economic growth and the shift toward alternative fuels like electric vehicles (EVs) and liquefied natural gas (LNG) for freight transport.
Oil demand in China, the world’s second-largest consumer, has declined due to its economic slowdown and a transition to other forms of transportation, such as high-speed rail and EVs. This contrasts sharply with previous years when demand surged post-pandemic. In recent months, China’s oil consumption has dropped, adding further pressure to the global market.
OPEC+ production cuts have also added complexity to the market. Although the cartel promised to increase supply, the delay in this decision hasn’t prevented the price drop.
**What about the technical side?**
At the end of last week, oil attempted to recover and closed above key volume levels of $68.25-$68.75. Based on this, I’ll be looking for long positions on Monday right after the market opens.
Check the chart below for setups and target levels:
