With the globalization of the economy and inflation concerns among investors, the main focus has been on the inflationary perspective of the Federal Reserve. Recent monetary policy decisions at the Fed have become more effective at shaping market expectations. As inflationary pressures continue to affect risk assets, many traders are thinking about when the Federal Reserve will make its next crucial decision and how it will take a toll on stock market trends. Will the Fed’s inflation strategy surge stocks upwards, or are there unforeseen risks lurking in the shadows?
The platform for addressing these questions is the financial markets, where macroeconomic data, central bank policies, and market sentiment intersect. With major financial indicators such as the Core Personal Consumption Expenditures (PCE) price index, GDP reports, and central bank speeches, markets are currently primed for volatility. The platforms we’ll focus on this week include key asset classes like Bitcoin, Euro USD, and the Nasdaq.
1. Bitcoin: Surfing on the Wave of Pessimism
Bitcoin has had an impressive run since the start of the year, bearing its bullish trend into the second quarter. Last week saw the crypto markets get a great boost from Jerome Powell’s remarks over the future of cryptocurrency. He said that the industry has staying power, which is something he has not been keen to say before. That has revived interest in Bitcoin and other cryptocurrencies, pushing their prices up even more.
- At present, Bitcoin is testing a breakout flag pattern with quite an impressive move above some key resistance levels.
- Moving to the latter part of the week, $31,000 will be an important level as players may test the same. If Bitcoin stands above this level, it could continue its upwards move and move towards its medium-term target at $37,000.
- Though a full retest may not happen immediately, buying opportunities may arise around $27,000, which also serves as a longer-term target of $37,000.
- The positive stance on Bitcoin puts all the expectations for further growth into place, especially if inflation concerns continue to build.
2. Euro USD Testing Key Levels as Reversal Potential Develops
We are yet to find another candidate for potential volatility this week, and that is the Euro USD currency pair. Again, the head and shoulders pattern is hinted here, reversing the bullish trend of the pair. A further rounding shoulder might occur, and, as price breaks below the neckline towards 1.07496, a drop towards the 200-day moving average may unfold.
- A break below this level would open further ways for the bearish move down, potentially testing even lower supports.
- If the head and shoulders formation fails to fully materialize, focus will be maintained on the buying opportunity that falls out with the pair.
- Breaking of 1.109 upwards may signal more moves upwards, and a move to the level of 1.12 may be the next resistance target.
- The Euro USD will take a hit in case the outlook for the Eurozone becomes even more optimistic or worsens in nature.
3. Nasdaq: Bullish Momentum Continues
The Nasdaq has been experiencing a steady bullish run against the expectations of most analysts, who have been trying to call the top of this rally. The market is still strong and does not show any evident signs of weakening or divergence. It remains crucial in this rally to follow through on the momentum and take advantage of the market strength.
- One area to watch is liquidity around the 15,300 level, which has printed a triple high. This is an important source of liquidity that has yet to be broken.
- Above the level should kick some further buying pressure into the Nasdaq and push it towards 16,500 in the medium term.
- After reaching that level of liquidity, a pullback to the 50-day moving average in mid-14,000 may offer an opportunity to buy at a more favorable price.
- Risk assets may still enjoy further growth, and with more positive sentiment over inflation data, Nasdaq can continue its top-of-the-list slot among equity markets.
Impact of Inflation Strategy on Federal Reserve
Market conditions are set to be shaped by a pivotal play by the Federal Reserve this week: its inflation strategy. The Core PCE Price Index, the Federal Reserve’s primary inflation gauge, will be watched closely. A better-than-expected reading could indicate that inflationary pressures remain strong, prompting the Fed to continue being more hawkish on interest rates.
- Alternatively, a softer reading could indicate that inflation is moving under control, allowing the Fed to stay on the sidelines or even reverse some of the recent rate hikes.
- Along with the PCE data, other clarity can be gleaned through US GDP growth and other Central Bank Governor speeches, leading to potential volatility in markets, especially for risk assets such as stocks, Bitcoin, and Nasdaq.
- If inflation eases significantly, markets may see a rally in risk assets as traders adjust their expectations for less aggressive monetary tightening. However, if inflation refuses to ease, further volatility may ensue as expectations of the Fed’s future policy actions adjust.
Conclusion
Price pressures are going to dominate even the last days of March and the first half of the year. The inflation strategy by the Federal Reserve is set in motion all key risk asset movements, including Bitcoin, Euro USD, and Nasdaq. The development within the inflation data series, US GDP growth, and communication from the central bank will keep traders on their toes as market conditions change.
- Bitcoin is still one of the top assets to watch, with upside potential following comments from Jerome Powell and impressive market performance.
- EUR USD will continue to trade strongly depending on the formation of a head and shoulders pattern.
- Meanwhile, the bullish trend in Nasdaq continues, with liquidity zones providing key targets.
As always in trading, preparation is the key to success. Analyze the coming macroeconomic events and stay informed on market developments to capitalize on possible movements in the market.
