FX.co ★ 26.01.2022: Focus on Fed’s rhetoric (S&P500, DXY, USD/CAD, BTC/USD).

Hi, dear friends! Global investors are riveted to the crucial event tonight. They will be looking for some clarity from the US central bank on further policy moves. What measures will be taken to struggle against soaring inflation? Is the regulator poised to raise interest rates in March or later? The market is sure to give a strong response to both the policy statement and the press conference of Jerome Powell. If the Fed comes up with less hawkish rhetoric than expected, the US stock market will reverse upwards. Meanwhile, large market players are revising trading sentiment from selling to buying while the market is touching the bottom. The major US stock indices closed again in the red on Tuesday. The Dow Jones edged down by 0.2%. The Nasdaq incurred the most losses of 2.3%. In fact, the closing prices did not reveal the whole picture. The S&P 500 has been sending signs of a bullish reversal for two days in a row. Despite a sharp fall of 1.2% during the day, the index regained almost all losses, closing yesterday. Futures on the S&P 500 are trading at about 4,356. The expected corridor is defined between 4,320 and 4,390. In case the US Fed confirms its hawkish rhetoric, the US dollar will be the winner. Recently, the greenback’s growth has been driven by the prospects of monetary tightening. Its index opened today at a two-week high and extended its moderate advance. Currently, it is trading at nearly 96.10. Today it is expected to trade in the corridor of 95.40 and 96.50. Nevertheless, the Fed’s policy update might completely change market sentiment on the US dollar tonight. If the regulator comes up with dovish statements, the US dollar will either weaken or settle at the current levels. Besides, traders expect some changes in the USD/CAD pair. Today, the Bank of Canada is due to unveil its policy decisions. Notably, the Canadian regulator has to find a balance between robust employment, high inflation, the coronavirus resurgence, and prospects of lockdowns. Analysts are hesitant about the outcome of the policy meeting, so the Canadian dollar weakened to 1.2661 earlier this week. However, the loonie could find support from rising oil prices. So, the USD/CAD pair is now sticking to the lower border of the corridor between 1.2500 and 1.2700. Currently, the pair is trading at nearly 1.2566. If the US dollar asserts strength amid the Fed’s hawkish rhetoric, the USD/CAD pair will surge in response.Investors are willing to sell speculative assets on the back of the large downward correction in the stock market and a plunge of major stock indices. Cryptocurrencies are going through turbulent times. Market participants are aware that the era of massive cash injections in the US economy and generous stimulus programs is coming to an end. Perhaps the Federal Reserve will deliver the message of aggressive monetary tightening tonight. What is the outlook for Bitcoin amid higher interest rates? Analysts have spotted its correlation with the Nasdaq and the S&P 500. Following a slump to 33,000 on Monday, the digital token has rebounded to 37,989. So, Bitcoin is drifting upwards while the market is sitting on the sidelines of the Fed’s policy meeting. Perhaps the Fed will again make cautious statements without details. The US dollar will lose its footing, but Bitcoin will gain ground. Fresh reports of top American companies clear up how the coronavirus crisis affected incomes of households. Some companies have benefited from restrictions. For example, Microsoft increased its revenue in the second half of the year to 39 billion dollars. Johnson & Johnson is planning to pump up vaccine sales by 46% in 2022. On the other hand, some companies were badly hurt. Air carriers lost 58% in 2020 from a year ago. General Electric reported an annual loss of 6.8 billion dollars. The Federal Reserve is facing a challenge: to prevent a crash in stock markets and prop up the economy under lingering coronavirus headwinds. How did financial markets respond to the Fed’s policy decisions? We will tell you tomorrow!

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