Central Banks Steer Markets as Fed Holds Rates, BOJ Ends Negative Rates, and BoE Signals Cuts

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This week was crucial for financial markets as central banks in major economies held policy meetings. The Federal Reserve (Fed) was the show’s star, with investors eagerly awaiting its decision on interest rates. While a rate was unlikely due to ongoing inflation, all eyes were on the Fed’s economic forecasts and plans for rate adjustments. The Fed’s pronouncements and decisions, along with those of other central banks, steered the direction of financial markets in the coming days.

 

EURUSD:

The Federal Reserve stuck to its plan despite recent high inflation readings. They reaffirmed their belief that inflation will continue to decline slowly and the economy will grow solidly at 2.1% this year, a significant upgrade from their previous forecast.

 

The Fed will likely cut interest rates three times this year, but the timing depends on its confidence that inflation will keep falling. Due to recent inflation data, the Fed is cautious and may hold off on rate cuts if inflation doesn’t show a clear downward trend.

 

 

The EURUSD keeps trading along its 100-day moving average, which has supported the EUR for the last month. The ADX indicator shows there is no longer an overbought market, and the EURUSD has kept trading above its bullish trendline since early October 2023. With the recent news about the Fed’s decision to keep the interest rate unchanged and the possible rate cuts coming sometime in 2024, the EURUSD can reach higher highs after breaking its two closest resistance levels at $1.0965 and $1.1008. Otherwise, the 100-day will likely keep being the strongest support that, if broken, can push the price to lower lows of around $1.0800.

 

USDJPY:

Japan’s central bank, the BOJ, ended a historic era of negative interest rates for the first time in 17 years. This decision comes after consumer prices and wages finally rose in the country. The BOJ raised its key interest rate to a small range of 0% to 0.1%, signalling a shift towards a more normalized monetary policy.

 

This move comes with both potential benefits and drawbacks. The hope is that higher interest rates will encourage spending and investment, boosting the economy. However, it could also lead to slower inflation and wage growth in the future. The BOJ has indicated it will carefully monitor the situation and may not raise rates further shortly.

 

 

The USDJPY has been bullish for eight consecutive days at Thursday’s closing. The price has been trading around the $151.56 level, which keeps resisting a bullish breakout. On March 18, there was a golden cross of the three exponential moving averages of 5, 15, and 20 days, signalling the strength of the USDJPY. The RSI oscillator is getting closer to the 70 levels, showing significant interest from buyers on the market. Still, it has not reached an overbought condition allowing the currency pair to reach higher highs. The $148.74 level remains a significant weekly support on the lower part of the chart.

 

GBPUSD:

The Bank of England kept interest rates at 5.25% for the fifth month in a row but signalled rate cuts are coming this year. Inflation has fallen significantly, dropping to 3.4% in February, although it’s still above the bank’s 2% target.

 

Most policymakers expect at least three rate cuts this year, with the first potentially happening in June. However, the Bank of England is cautious because it wants to ensure inflation keeps falling and doesn’t rise again.

 

 

After closing above it last Wednesday, The GBPUSD trades again below the $1.2763 level. It goes back to a sideways range between $1.2763 and the 200-day moving average, currently trading around $1.2591. There has been a bearish signal from the MACD indicator, which has had a bearish crossing to its signal line, and the histogram shows an increase in the bearish movement, likely explained by the significant strength of the US dollar on Thursday. Below, there is an additional support at $1.2564

 

US500:

The stock market continued its rally on Thursday, with all major indexes closing at record highs. The Dow gained 0.68%, the S&P 500 rose 0.32%, and the Nasdaq climbed 0.20%.

 

Investor confidence remains high due to the Federal Reserve’s plan to cut interest rates three times this year. Semiconductor stocks performed particularly well, with Micron Technology jumping 14% on strong earnings. Social media company Reddit also surged in its market debut.

 

 

Stocks have closed at new record highs, with the S&P500 on a 4-day streak. The index remains trading along its bullish channel and above the key level of 5,200, now its closeest support. The next key level for the index is around 5,300. However, the RSI oscillator indicates the market is getting overbought, as it is at the 69,97 level. This could indicate that stocks might get into an overbought condition that will limit their capacity to reach higher highs and can get into a consolidation phase for the upcoming weeks, around the 5,200 level.