In recent months, the financial landscape has witnessed shifting dynamics, especially regarding interest rate expectations from the Federal ReserveAs inflation remains steadfast and job growth shows resilience, the market's anticipatory posture has dramatically softenedAt the start of the year, projections pointed to approximately 167 basis points of rate cuts by 2024; however, this figure has now been slashed to around 83 basis pointsThis sudden pivot has left many analysts and investors scrambling to adjust their forecasts and investment strategies.

Jerome Powell, the Chairman of the Federal Reserve, during the recent FOMC meeting in March, indicated a more dovish tone despite rampant inflation and strong GDP growth

His reassurance that the Fed's commitment to maintaining full employment while balancing price stability remains crucial has further complicated the outlookAccording to him, robust job creation is not a deterrent to potential rate cuts but rather a supportive factor for broader economic health.

Despite Powell's statements, no rate cuts have materializedThe rising dollar, a result of adjusted monetary expectations, has overshadowed weaker currencies, notably the Japanese yenThe yen recently approached historic lows, nearing the critical level of 152 against the dollar, raising eyebrows among speculators who had heavily bet against itThis skeptical environment, juxtaposed with the continued ascent of both gold and U.Sstocks, emphasizes the prevailing sentiment that a rate cut from the Fed is merely a question of when, rather than if.

As analysts dissect the implications of current financial indicators, they observe a precarious landscape for the yen amidst dramatic interest differentials

• The Japanese Stock Market May Be Overbought
• Can the U.S. Treasury Expect a Turnaround?
• Slight Growth in the U.S. Economy
• The Definitive Thread of Economic Prosperity
• Will Gold Continue Its Bull Run Next Year?

The momentum behind gold pricing appears to be softening slightlyNotable technical indicators, such as the Relative Strength Index (RSI), have shown signs of divergence, suggesting that the bullish drive may be waningNonetheless, the bullish narrative has yet to entirely unravelMeanwhile, technology-focused indices like the Nasdaq 100 have trended slightly lower but still present an overall optimistic outlook as they test their historical peaks.

The Federal Reserve’s Dovish Stance and Its Impact on Markets

As the Federal Funds Rate reached levels not seen in decades, the initial consensus early last year suggested that once the Fed reduced rates for the first time, it would likely lead other central banks, particularly in emerging markets and some developed markets, to follow suit

However, with the recent pullback in rate cut forecasts—a drastic revision from 167 to 83 basis points—the broader implications for monetary policy have become increasingly convoluted.

Looking ahead, expectations are increasingly leaning towards the Fed and the European Central Bank commencing rate cuts by June, with Asian counterparts potentially joining in the third quarterA delay in the Fed's rate cuts could momentum-shift those timelines across the globe.

The persistent inflationary pressures within the U.Seconomy, alongside an exceptionally robust job market, are both factors contributing to the delayed rate reduction

For instance, the core Personal Consumption Expenditures (PCE) index saw a month-on-month increase of 0.4% in January, marking a renewed highMoreover, non-farm payrolls continue to reveal strong job growth, further complicating the Fed's decision-making process.

Nonetheless, a prevailing belief remains that U.Sinflation will gradually declineThe sentiment has not deterred expectations surrounding potential rate cuts, but should inflationary pressures and economic growth swiftly regain strength, long-standing concerns of a "prolonged period of high rates" might materialize, potentially shattering optimistic views on risk assets.

As conditions stand, meaningful dollar weakness seems elusive unless a more aggressive rate cut approach materializes from the Fed

The dollar index recently rose above the 104 mark, suggesting potential further climbs given the robust economic data, compelling the Fed to maintain a hawkish approach in the short term.

In the long run, some downside risks are likely as the Fed begins its rate reduction strategy; however, given the current state of the yen and euro, both currencies are under pressure, making it challenging for their respective central banks to adopt overly hawkish stancesTechnically speaking, the dollar index has tested the 100 threshold multiple times within the past year, suggesting limited downside risks for the remainder of the year.

Japanese Yen Approaches Historic Lows

In light of the strengthening dollar, the yen has endured significant pressure

For the first time in eight years, Japan's monetary policy appears to be contending with the conundrum of a weakened yen, as USD/JPY hovers close to 152, a level not seen in years.

Japanese policymakers assert that this trend is driven more by speculative activities than by fundamental shifts, constantly raising the specter of potential interventions from the Bank of Japan (BoJ). The ongoing arbitrage trading is eroding the yen’s value, positioning it near decades-long lows.

As USD/JPY hits new highs, Japanese officials swiftly convened discussions with senior diplomats responsible for foreign exchange, warning that the current trajectory is not supported by fundamental metrics and cautioning against further speculative activities

They emphasized that if this trend persists, intervention could be imminent.

Reflecting on recent events—Japan experienced its first rate hike since 2017 while simultaneously abandoning negative interest rates; however, the increase was only a modest 10 basis pointsThe central bank's signals remain ambiguous, refraining from committing to additional rate increases soonNotably, their intent to retain a highly accommodative stance continues with the accelerated purchasing of Japanese government bonds.

For a currency pair driven primarily by interest differentials, understanding this dynamic is essential when discussing the outlook for USD/JPY

With yen arbitrage continuing until weakness in risk assets externally stabilizes, it indicates the yen's struggle is unlikely to relent anytime soon.

USD/JPY appears to be forming a textbook ascending triangle, with a long-term uptrend originating from early 2022 intersecting resistance just below 152. The distance between the two points suggests that a breakout could herald a significant surge (indicating further yen depreciation). While the market is anticipating another rate hike from the BoJ by late 2024, the key question remains—how aggressively will the Fed's accommodating cycle contrast with expected rate curves?

Gold Price Fluctuates, Yet Long-term Momentum Remains

On March 21, spot gold prices surged to a historic high, eclipsing the critical $2200 threshold

Following this high, a period of consolidation ensued, with gold trading around $2195 by March 28.

Historically, expectations of rate cuts have typically heralded a bullish phase for gold pricesThe rationale is that as U.Srates decline, the allure of non-yielding assets like gold becomes increasingly pronouncedFurthermore, central banks globally are enhancing their gold allocations.

Post-Fed meeting, gold catapulted through previous historical highs, triggering a surge past key stop-loss levels in mere hours, jumping above $2200 per ouncePrior to overcoming the 2020 peak, gold exhibited an ascending triangle pattern where extensions suggest potential gains upwards of $2500. Although such a dramatic shift may not be immediate, it suggests that buying on dips remains the favored strategy unless a definitive breakdown in the upward trend is witnessed.

Currently, positioning reports indicate a growing appetite for gold futures (denominated in dollars), with large speculators and managed funds reducing short positions while increasing long holdings

While there are reasons to suspect a diminishment in momentum, the net long positions of around 200,000 and net fund longs of approximately 140,000 are not excessively extreme historically, implying potential limits on any retracements.

It’s imperative to remain vigilant, for the potential for a short-term reversal in gold prices loomsThe RSI has developed a bearish divergence, showcasing two distinct sell signals from unsuccessful pushes to stay above $2200. Indeed, a bearish shadow developed at this threshold recentlyAcross the daily charts, a potential head and shoulders pattern suggests a target price near $2070, approaching the 2020 apexCurrently, gold appears poised for a dip towards $2050, and should prices persist below $2200, shorts may exit during any minor rebounds

A drop below $2046 would validate the head and shoulders pattern.

The Nasdaq 100 Targets New Heights at 19000

As the U.Smarket garners intense focus, bolstered by the AI surge, the Nasdaq has recently ascended beyond our forecasted target of 18000, with 19000 now in sight.

In response to unexpected dovish signals, U.Sequities surged, with the closing prices at historic highs following the FOMC meetingAs of March 21, the S&P 500 closed at 5224.62, up 0.89%, while the Nasdaq 100 gained 1.15% to settle at 18240.11. By March 28, the S&P 500 had surpassed 5248, and the Nasdaq 100 hovered around 18280.

It's noteworthy that the Dow and S&P saw bullish consolidation after breaking historical peaks last week

The Nasdaq 100 is currently testing its monthly range upper historical highs, aiming for a potential breakthrough target of 19000.

From a graphical perspective, the S&P 500 index displays a more bullish posture than the DowSince bottoming out last November, the macro index for large-cap stocks has consistently marked higher highs and higher lows without experiencing a 2% pullback during closingHistorically, prolonged periods without such declines have heralded future bullish trendsObservations indicate that the S&P 500 tends to increase following seven consecutive 100-day periods without a 2% pullback, with the median return over the subsequent six months nearing 7%.

Focusing purely on technical aspects, the bullish enthusiasm for the S&P's daily chart remains palpable

The recent support lies at the convergence of the uptrend line and the former resistance now acting as support around 5190. Similar to the Dow, there are no significant resistance levels currently to monitorThe single-sided upward trend will eventually come to a close, but until then, the path of least resistance appears to remain upward.

In the past month, the Nasdaq has oscillated between 17800 and 18400, attempting to achieve what the Dow did - trading sideways to gather momentumOver the last few trading sessions, the index has quietly consolidated below this upper range, potentially establishing a foundation for significant upward movement and new historical highs.

We are of the belief that as long as the index remains above the support level of 17800, bulls will keep an eye on a potential upward breakthrough