Markets may face today large fluctuations, which might be sharp and unexpected, for the following reasons:
1) The sharp decline wave (bearish trend) ahead the Fed’s announcement of its decision on interest rates, which will be announced this evening. There is a conflicting expectation about the rate hike that the Fed will approve today. Previous expectations indicate half a point, but the inflation level raised expectations to 75 basis points.
2) The meltdown of cryptocurrency due to the huge fall of Bitcoin below 20,000.
3) The ECB emergency meeting scheduled today to discuss market conditions announced that it would apply flexibility to its reinvestments of Pandemic Emergency Purchase Program (PEPP) redemptions with a view to preserving the functioning of monetary policy transmission mechanisms. In addition, it instructed a committee to create a new tool to combat unwarranted jumps in Euro area bond yields. The Euro falls as ECB doesn’t offer much in dealing with fragmentation risks, for now.
4) The benchmark 10-year US Treasury bond yield is down more than 3% on the day, fueling XAUUSD’s rally, and US stock index futures cling to strong daily gains.
5) The markets left a price gap with the opening of trading this week, and this will confuse traders as to whether that gap will be covered or if it is a gap that indicates the continuation of the downward trend (bearish trend).
6) The US stock markets entered a downturn, with a decline of more than 20% compared to the highest peak recorded this year.
7) Finally, fears of an economic slowdown accompanied by high inflation have made forecasts very confusing about a possible recession.
Furthermore, the lower US retail sales data released lately, means lower potential economic growth leading to lower revenues for companies. On the one hand, inflation is increasing nonstop, which should force the Fed to be more aggressive. However, a more aggressive tone means higher rates, which also leads to slower economy.
Will there be a ‘Buy the rumor Sell the fact’ reaction?