FED raises rates, ECB to follow suit: Thursday brings volatility to commodities

By Tomasz Wisniewski|

Published: May 04 2023, 08:59 GMT+0

FED raises rates, ECB to follow suit: Thursday brings volatility to commodities

A lot was happening yesterday on the market, with the crème de la crème being the FED’s interest rate decision and the accompanying statement and press conference. Today’s calendar reads another interest rate decision, this time from Europe. Let’s see if the ECB follow in the FED’s footsteps with another rise.

Yesterday, the FED increased their rates by another 25bp. The rates have been the highest since 2007, with the fastest rising pace since the ’80s, when the FED’s chairman was Paul Volcker. Let me recap a few key comments from Jerome Powell here, who claimed that more rate hikes are still possible and there was no decision about a pause on rate hikes. He also stated that the process of tackling inflation has a long way to go and that more data is needed to see if the FED funds rate is restrictive enough. Jerome Powell also added that it may be too soon to cut rates.

Overall, we saw a decline in stocks and value of the American currency. Thursday starts with a small correction of those moves but, naturally, some instruments were damaged, such as Dow Jones dropping to the lowest levels since the end of March. The USDCHF is currently trading at new, long-term lows, while Cable is at the highest levels in almost a year.

Today, the ECB is expected to raise rates to 3.75% from the current 3.5%. Claims are that this might be one of the last rate hikes as the conditions are already pretty tight, and the inflation seems to be slowing down, loosening the grip around the consumers’ necks.

Thursday brings about extraordinary volatility in commodities. Gold managed to set new long-term highs, but they were quickly denied and the price dropped like a rock. This allowed to create a shooting star candle that might potentially start a bearish reversal or, at least, a correction. Amazing things have been happening for oil in the past few days. The OPEC+ decision about the production cut is long gone. The price of WTI is below the psychological level of 70 USD/bbl. This may be the pain threshold, though, as we can see a nice bounce off the said levels. WTI is creating a hammer candle, which may be an invitation to go long.

Today’s calendar will be all about the ECB, but if you are looking for more attraction on the USD, Friday will come with great help. It will be a NFP Friday – a real treat for every trader! Apart from that, we are going to receive inflation data from Switzerland and job numbers from Canada. A fun way to end this interesting week!

Source: https://www.axiory.com/analytics/market-news/fed-raises-rates-ecb-to-follow-suit-thursday-bring