Breaking News
Investing Pro 0
💎 Reveal Undervalued Stocks Hiding in Any Market Get Started

Markets Are Betting The Fed Has It Wrong Again

By MarketPulse (Jeffrey Halley)Market OverviewJun 24, 2022 12:54AM ET
Markets Are Betting The Fed Has It Wrong Again
By MarketPulse (Jeffrey Halley)   |  Jun 24, 2022 12:54AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

The second day of Jerome Powell’s semi-annual testimony on Capitol Hill passed without incident, in contrast with the frenzy on Wednesday. He reiterated an unconditional commitment to fight inflation by the Federal Reserve, but markets instead, continued to price in a recession stopping rate hikes in their tracks much sooner. US yields fell once again, equities firmed once again, cryptos crept higher, while currency markets did almost nothing unless we are talking about USD/JPY.

Assuming that the Fed will have to change course sooner than late 2023 isn’t an unreasonable assumption. The Fed and a procession of central banks around the world got inflation completely wrong and have been scrambling to reverse the mistake. Given their track record, assuming they are going to be wrong the other way is completely reasonable in that context.

The commodity space is also pricing in the recession outcome. Copper prices plummeted overnight, and that has been the case recently with most industrial metals. Even soft commodity prices have fallen, and I’ve even seen a few headlines here in Indonesia about small palm oil farmers' incomes taking a hit. Oil has taken a bath this week as well, and the increase in natural gas inventories yesterday from the EIA data saw US natural gas prices fall as well.

Still, I remain unconvinced that inflation will magically just stop in its tracks just because Mr Powell mentioned the word recession. Oil futures curves on both Brent crude and WTI remain in backwardation, which tells us prompt supplies are tight. The curves moved down in totality but didn’t really change shape. We are getting plenty of headlines from around the world about potential blackouts as energy supplies and power generation capacity remain under stress. Russian oil and gas production will decrease as well as they run out of western parts to maintain production. Most significantly, Germany activated phase two of its emergency energy plan yesterday, as Russian gas flows continued slowing. If Europe is heading to international markets at short notice to hunt for supplies, energy prices aren’t going to fall much further.

The moves this week, could still turn out to be the result of a financial market genetically pre-programmed to buy dips in equity and bond prices, thanks to two decades of central bank largesse. It could also be a bear market correction as the stampede for the exit door got overdone in the short term, leading to a short-squeeze. Maybe next week’s PMIs will give markets a better clue, or perhaps the July Nonfarm Payrolls and JOLTS data. It would be foolish to price out geopolitical stresses related to Ukraine/Russia conflict either, particularly in relation to European energy or Ukrainian food exports. The FOMC meeting on July 26-27 may as well be next year at present, we can expect a lot more volatility between now and then.

Yesterday, the central banks of Indonesia and the Philippines sprung no surprises. BI kept policy rates unchanged thanks to a benign inflation landscape for now. BSP hiked by 0.25% as expected. The Indonesian Rupiah eased yesterday, but overall volatility in the Asian FX space was flatlined.

Currency markets continue their sideways trading

Currency markets remained steady once again yesterday and seem to be finding the back-and-forth histrionics in the stock and bond markets a bit tiresome. Currency markets seem to be adopting a step out of the noise, wait-and-see approach into the end of the week. ​Thanks to a rise by the Yen, and a fall by the euro cancelling each other out, the dollar index remains almost unchanged on a 24-hour basis at 104.29 today. The dollar index has support at 1.0350 with resistance now distant at 1.0570.

EUR/USD fell by 0.45% to 1.0520, creeping up to 1.0530 in slow Asian trading. It is showing surprising resilience as the Russian natural gas exports to Europe situation deteriorates. Because of this, risks have shifted to the downside for the single currency. It has initial resistance at 1.0600, with challenging resistance at 1.0650. Support is at 1.0450 and 1.0400. Sterling probed the 1.2200 downside once again overnight but is almost unchanged over the past 48 hours at 1.2275 in Asia. GBP/USD has initial resistance at 1.2360 and 1.2400, with support at 1.2200, 1.2160, and then 1.1950.

USD/JPY mechanically fell by 0.93% to 134.95 yesterday in lockstep with lower US yields. In Asia, it has eased to 134.70. If bond yields ease again tonight, a deeper correction by USD/JPY is possible, potentially targeting the 132.00 regions. ​USD/JPY has support at 134.25 and 132.00, with resistance at 136.65 and 138.00.

AUD/USD and NZD/USD were mostly unmoved yesterday. AUD/USD eased by around 0.40% yesterday to 0.6900, while NZD/USD is unmoved at 0.6295 thanks to a local holiday. Both are finishing the week near their lows and risk more losses in New York time if sentiment remains negative. Support is at 0.6850 and 0.6200 respectively.

Asian currencies finished almost unchanged yesterday, but with USD/Asia remaining near to recent highs. That reflects fears that a US recession will have an immediate knock-on impact on Asian growth and notably, lower US yields and a stock market recovery this week have given no support to local currencies. Looking at the price action I wouldn’t be at all surprised if quite a few of the region’s central banks are quietly on the offer, capping the USD/Asia upside.

Oil prices are noisy but unchanged

Oil prices had another noisy session, trading in wide intraday ranges. Ultimately, as the dust settled, both Brent and WTI finished almost unchanged for the second day in a row. The unexpected postponement of the official US Crude Inventory data set due to technical issues likely played a major role in the neutral close, as the data set is one of the most closely monitored in the global energy sphere.

Brent crude fell 0.30% to $109.65, gaining 0.40% to $110.10 a barrel in Asia. WTI fell 0.45% to $103.95, before rising 0.55% to 4104.55 a barrel in Asia. The net result is that oil prices are almost unchanged on a 24-hour basis.

Looking at the respective futures curves, both Brent and WTI are still heavily in backwardation, suggesting that prompt oil supplies remain as tight as ever, even as prices across the curves fall. Increasing recession fears appear to be prompting a culling of heavy speculative long positioning in both contracts, even as in the real world, energy tightness is as real as ever.

The technical picture is interesting. Brent crude has tested its 100-day moving average, and the 2022 support line at $107.30, but managed to bounce back to $110.00 a barrel. A daily close under $107.30 implies a deeper move potentially reaching $100.00 initially.

WTI’s technical picture is much softer, having closed below its 2022 support line at $106.30, and its 100-DMA, today at $105.50 a barrel. Failure of its weekly low at $101.50 could trigger a capitulation by speculative longs that moves WTI under $100.00 a barrel, although I suspect a lot of the damage has already been done.

Gold falls

Gold bugs once again appear to have lost patience, as gold fell by 0.82% to $1822.50 yesterday, edging slightly higher to $1824.00 an ounce in Asia. Probably most concerning, was that gold fell as the US Dollar remained mostly unchanged and US yields had another big move lower. Even cryptos managed to move slightly higher. With that in mind, it appears that gold is going into the end of the week looking vulnerable, although I am not betting against the $1800.00 to $1870.00 range trade continuing.

Gold has resistance at $1860.00 and $1880.00, the latter appearing an insurmountable obstacle for now. Support is at $1805.00 and then $1780.00 an ounce. Failure of the latter sets in motion a much deeper correction, potentially reaching $1700.00 an ounce. On the topside, I would need to see a couple of daily closes above $1900.00 to get excited about a reinvigorated rally.

Original Post

Markets Are Betting The Fed Has It Wrong Again

Related Articles

Markets Are Betting The Fed Has It Wrong Again

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your profile, will be public on and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email