It's all about the Fed today and it's a betting game now to see what the reaction in broader markets will be by the end of the day.
The turmoil involving US regional banks yesterday isn't going to make things easier to read. Treasury yields slumped heavily as a risk-off wave swept markets, and that itself is keeping the dollar in a decent spot despite Fed fund futures looking for rate cuts as early as September.
The yen also regained some footing with USD/JPY backing away from 137.70 levels, having neared its 8 March high, to fall back below the 200-day moving average. Now, price action is contesting its 100-hour moving average at 135.96 and a break below that will see sellers regain back some near-term control - potentially opening the path back towards 135.00.
EUR/JPY has also fallen back under 150.00 from its highest levels since 2008, and a lot will come down to the Fed and ECB decisions to come this week.
Elsewhere, oil is seen plunging further with WTI crude setting its sights on $70 next again. And then there is gold, which is benefiting from the risk aversion in markets, rising back above $2,000 after the recent consolidation in and around the figure level.
I reckon unless the Fed is explicit about pausing, we could see some jitters return on the initial reaction before calmer heads prevail as the dust settles.
Hindsight is 20/20 and if you try and look at things post-Fed now, perhaps it would be better for the Fed to hike and then be implicit about pausing. I mean if they do not hike today and that isn't enough to help out regional banks, it's a terrible message to markets and public perception. And at the same time, they also lose credibility on the inflation front.
It would be better taking a loss in one battle than to suffer a loss in almost every other department surely.
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