Federal Reserve, FOMC:
- The Federal Reserve announced its decision on interest rates for May, raising interest rates by 50 basis points.
- This is the first increase of 50 basis points since the last such move 22 years ago, in 2000, when the Federal Reserve tried to cool the surplus from the dotcom bubble. This, perhaps, works a little too well when dotcom falls later in the summer.
- This is a “live article”, which means that it will be updated through the price decision and the press conference. Each update is time stamped from the time of the update and will be read in reverse chronological order below.
- The analysis contained in the article relies on price action and charting. To learn more about pricing or chart patterns, see our DailyFX Education section.
15:30 ET
The press conference is over and the consequences here are something to note. The big conclusion here is the role of expectations. The Fed rose 50 basis points for the first time since 2002. But the interest rate decision feared that next month, in June, could lead to 75 basis points. Today, Powell confirmed that the bank’s thinking is an increase of 50 basis points over the next few months, and the simple fact that it falls within the expectations for 75 next month provided little relief for both stocks and the US dollar.
This led to a massive rise in shares and the S&P 500 is now 3% off the bottom, which was hit at the start of the 14:30 ET. The next level of resistance in the S&P 500 is a large spot at 4304, which has caught two recent deviations.
Four-hour price chart for the S&P 500
Diagram prepared by James Stanley; S&P 500 on Tradingview
The Nasdaq 100 also moved a lot, with a 4.5% jump from the bottom of the session at the Fibonacci level, drawn at 12,895.
Price chart for Nasdaq 100 in 30 minutes
Diagram prepared by James Stanley; Nasdaq 100 on Tradingview
And on the currency side of the equation, the US dollar sank to new lows as Powell removed some of the pressure from the issue.
Given how strong the offer was before the event today, the big question remains how much longer this could fall. Even the Fed’s “softer” interest rate hike framework still exceeds that of its counterparts in Europe or Japan, so this may be a situation where these other currencies find it difficult to justify any long-term, at least until something has changed on this front.
The potential for support in USD remains around the Fibonacci level of 102.36 and around the 102.00 level in DXY.
Two-hour price chart for the US dollar
Diagram prepared by James Stanley; USD, DXY on Tradingview
15:00 ET
The US dollar was finally withdrawn, as Powell was not as bright as many feared he would fall into today’s interest rate hike. The dollar is now trading at a new weekly low, pulling a key spot from previous support around the 102.82 level.
Price chart for 30 minutes per US dollar
Diagram prepared by James Stanley; USD, DXY on Tradingview
14:46 ET
Another rise in shares after Powell said 75 basis points was not a consideration for the Fed and instead the bank looked at increases of 25 basis points for upcoming meetings.
Since then, the S&P 500 has jumped to the top of the session, stressing the importance of expectations.
S&P 500 30-minute price chart
Diagram prepared by James Stanley; S&P 500 on Tradingview
14:42 ET
Powell said increases of 50 basis points were planned for the next few meetings, which could be a relief for stock market participants, as expectations of 75 basis points were accumulating in the interest rate decision in June.
Shares rose after this comment and the S&P 500 returned some of the decline earlier in the press conference.
S&P 500 30-minute graphics
Diagram prepared by James Stanley; S&P 500 on Tradingview
14:35 ET
Powell starts the press with a very hawkish tone towards inflation, saying that it is “too high”. This caused an immediate turnaround in stocks, with the S&P 500 now heading for low session levels.
30-minute chart of the S&P 500
Diagram prepared by James Stanley; S&P 500 on Tradingview
14:05 ET
The interest rate decision was announced and the Fed rose 50 for the first time since May 2000. That was 22 years ago, and at the time, the air was still on the road to the technology boom. This increase in interest rates in May 2000 was the second such move this year, as an increase of 50 basis points was also recorded in March.
If the Fed seemed to be trying to catch up, it may sound somewhat similar to today’s, marking the first of what is expected to be a much larger 50-point interest rate hike.
The bigger driver for today, at least in my opinion, will leave the press conference at 14:30 ET. The initial response to the shares was strong, as the Nasdaq rose to a new three-day high before seeing some sales and finding support around the known Fibonacci level of 13,050.
Nasdaq 100
Diagram prepared by James Stanley; Nasdaq 100 on Tradingview
The US dollar has retreated in a similar way, but support has so far remained above yesterday’s break of 103.03, which is currently hitting a weekly low. And there’s another place of support a little lower, around 102.82.
Price chart for 30 minutes per US dollar
Diagram prepared by James Stanley; USD, DXY on Tradingview
14:00 ET
We are finally here. While the FOMC’s interest rate decision in March led to a withdrawal following unprecedented stimulus costs during the coronavirus pandemic, this interest rate decision is the first in which the bank is expected to rise by 50 basis points. Information is also expected on how the bank seeks to deal with QT in the coming months as the Fed begins to cancel some of the gadgets built around the pandemic.
This is a “live article”, which means that it will be updated during the event. The statement with the official announcement is at 14:00 ET. But the press conference starts at 14:30 ET and, perhaps, this is the more important component of today’s meeting. This is where President Powell may begin to block the track for the interest rate decision in June, where the bank is expected to keep up the pace. At the time of writing, 15 minutes before the interest rate decision in May, markets expect the interest rate decision in June to lead to another 75 basis points.
Before the fireworks, the Nasdaq 100 held a critical place of support around the 13k level. This is a zone of support around the annual lows that have been at play in the last few weeks. And this area is largely in play because of the anticipation of today’s event; and not just raising interest rates, but what else the Fed has to say for the rest of the year.
Daily price chart for the Nasdaq 100
Diagram prepared by James Stanley; Nasdaq 100 on Tradingview
— Written by James Stanley, senior strategist for DailyFX.com
Connect and follow James on Twitter: @JStanleyFX
element inside the element. Probably not what you wanted to do! Instead, load the JavaScript package of your application into the item.
Add Comment