US and European futures are trading higher today as traders like the fact that central banks around the bank have a single mandate now, which is to control inflation. We also have several Fed officials speaking later today, including Jerome Powell. Market players will be paying attention to every word during their speeches today. In addition to this, we will also get to see the latest reading of Crude Inventories data in the US, which is highly important given that Biden will be speaking at the NATO’s meeting tomorrow.
Single Mandate
Listening to the recent speeches from several Fed officials, it is now evident to traders and investors that the Fed is under a single mandate now, and that is control inflation. Powell startled the market on Monday when he spoke at the National Association for Business Economics. The chairman only focused on one thing and one thing only and made it clear that inflation is much too high. The message was clear that the central bank would take the necessary actions to achieve a return to price stability.
Traders have started to bet that the Fed will step on the gas to drive up interest rates faster than anticipated. The Fed fund rate market has started to show much higher odds about the Fed becoming more aggressive to increase the interest rate by 50 basis points at their next meeting and for a couple of subsequent meetings. We believe that it is highly possible that the Fed could easily hike the interest rates in the US to 2.25% from its current level by the end of this year.
Oil
Traders are worried about one thing only when it comes to oil prices, and that is the oil supply. As long as the Russia-Ukraine peace talks do not yield any meaningful, peaceful solution, traders are likely to worry about this factor. The US and Saudi Arabia are indeed true giants in oil supply, and they can perhaps fill up the vacuum under normal circumstances. It is doubtful that both countries can do anything meaningful to fulfil the demand if Russian oil goes under embargo.
Oil prices retraced from the $119 price level yesterday. Today, we see them trading in positive territory as traders take any opportunity to retrace oil prices as a bargain-hunting opportunity. We saw the price moving away from its highs yesterday mainly because it seems unlikely that the European Union will agree to ban Russian oil. However, President Joe Biden is slated to announce more strict sanctions on Russia during his meeting with European leaders, which is taking place tomorrow. Biden is also attending the emergency NATO meeting. That event is also likely to bring higher volatility for oil prices as sanctions are the major factor that is likely to be the most influencing factor on oil prices.
In summary, the oil market is concerned about the likelihood of more sanctions on Russia, the world’s second-largest crude exporter, following its invasion of Ukraine, which Moscow describes as a special operation.
Gold
The precious metal has started to consolidate in terms of its price action for the past number of days as traders are unsure about the future direction of the gold price. Basically, what is happening with the gold price is that we have geopolitical tensions related to Ukraine and Russia on one side. Biden has labelled Putin as a war criminal, and Kremlin is not happy with this label. The war in Ukraine is likely to become more intensive in the coming days. President Biden will adopt a more strict stance against Russia during the special NATO meeting on Thursday. This event is undoubtedly a risk-off, and traders are likely to favour gold prices.
On the other side, we have the Fed’s monetary policy stance, which keeps the gold price in check. This is because now it is clear that the Fed will increase the interest by nearly one percentage point (combined) during their next two meetings. Remember, previously, it was only anticipated that the Fed would increase the interest rate by 25 basis points during their next meeting, and that was a total of 50 basis points in their next two meetings.
Nonetheless, the important price level for the precious metal is 1,800, and traders are keeping a close eye on that support. If we see a violation of that number, we will likely see lower highs and lower lows.
Bitcoin
The digital gold has retraced from its recent high of $43,283, and this is a sign that bulls are just not in good shape. BTC bulls need more firepower for the BTC price to increase from here onwards. The thing is that BTC traders are not all on the same page. In Europe and the US, we have more regulatory overlook on the crypto situation, which is positive for long-term sustainability. However, in Asia, there is no favourable stance among regulators. Hence, this is why over the past number of months, the rallies that we see for Bitcoin during the European or the US sessions are taken up as an opportunity to short during the Asian sessions. In addition to this, wallet activity shows that the whales are still sitting on the sideline, and retail clients drive rallies.