Powell and Yellen Stir the Market
What Happens Now?
FOMC Takeaways
The March FOMC meeting came with a more hawkish tone than some were expecting, and risk assets promptly sold off as Jerome Powell took to the stage.
The 25bps rate increase fell in line with expectations, and Powell did hint at a slowing or potential pause in hikes moving forward. This was his most noticeable dovish comment.
Committee consensus was for rates to hold around 5.1% through EOY and for GDP to slow down. They do not expect to start cutting rates this year.
As Powell was speaking, Janet Yellen’s stated that the Treasury is not considering or working on a unilateral expansion of deposit insurance. The market seemed to react negatively to this.
The media did well to press JP with some tough questions, and his admission to a lower probability of a soft landing was particularly telling.
Then there was this statement, which seems absolutely absurd. If you really believe the banking system is sound, you’re as gullible as most people were in 2008. Why take the risk?
Overall, Powell remained steadfast in his resolve to return inflation to the long-term goal of 2%, bring back price stability, and balance the labour market. There was very little focus on the banking sector and a stubborn defiance of outstanding risks.
If JP was trying to soothe the markets with his statements, it didn’t work. The market seems to be calling the Fed’s bluff at this point. They are saying, ‘You went too far, too fast and will have to retrace your footsteps’. Least that’s the way I see it.
The treasury market seems to back my theory, as 6-month yields have dropped well below the FOMC’s 5.1% benchmark. In other words, this goes against the narrative that we won’t have rate cuts before EOY…
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Technical Analysis Corner
Bitcoin Daily Chart
We now see BTC pushing into the resistance area between 28-32k, with a moderate bearish divergence forming on the 3D timeframe. Though cautionary, it can be looked at as an early warning sign. Price may float sideways for a while or pull back somewhat before completing its mission to 30k+. Price would need to close above 25.2k on any retest.
Bitcoin 4H Chart
The 4H shows us that several weak drives were attempted, and a series of bearish divergences were formed. This is a typical sign of local trend exhaustion. The subsequent pullback to 26680 was confirmation of that. 28k is providing intraday support, and a close back below there means we could fill that inefficient space down toward 26650. Below that all eyes are on 25k area.
S&P500 3-Day Chart
The S&P500 index continues to amble along, with yet another close above the 3-day 50MA. Lose that in confluence with the downtrend diagonal and we’ve got trouble in the short term. Bulls would like to pull up the plane with a solid finish to the week. Note the daily 200MA also sits around 392.
ETH 4H Chart
Ethereum resolutely held the value area high around $1730 and used that zone as a springboard. If price can maintain above $1820, there’s an air pocket above, in which price may travel quickly toward $1980. If this happens and we see ETH outperforming BTC finally, it should help unleash what everyone’s been waiting for…an altseason.
Jay Charles
Editor in Chief, The Trading Tank.
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