We all know that for the Fed to keep with its higher rates for longer policy, it needs the US economy to keep as solid as it is now in the months or even year ahead. In that lieu, I would argue that the most confounding thing about the US economy in the last year has been the resilience of the US consumer. But is all that about to change?

This is pretty great chart (h/t @ Mayhem4Markets) and it speaks to how the pandemic savings is quickly depleting in the US and already has for the lower and middle income households i.e. bottom 80%.

For one, that could translate to weaker spending in the months ahead as consumers run out of excess savings to spend – especially for non-essential goods.

In the face of more subdued consumption and spending, that will in turn impact businesses and spill over to softer labour market conditions perhaps. So, don’t underestimate the chain effect this may have.

Essentially, the US consumer is the ribbon that ties everything together for the Fed right now. If that comes undone and the economy starts to weaken significantly, that will throw the Fed into a bit of a disarray in trying to manage its higher for longer narrative.

And the key question now is, as pandemic savings run out, how soon will this turn into material weakness in the US consumer?

So far, we’re not seeing much signs of that but it is worth keeping an eye out for just in case. It’s all about the data right now but it is important to recognise the potential drivers and forces that may come into play in the months ahead and this is one of that. And a rather critical one at that I might add.

This article was written by Justin Low at www.forexlive.com.

Momentum trading is grounded in the idea that securities
that have recently performed well will continue to do so in the short term,
while those that have underperformed will continue to lag.

A key issue in momentum trading is to identify the trend as
early as possible to maximize the strategy’s returns and avoid entering close
to a trend reversal when the returns would be negative. As such using intraday data indicators as opposed to end-of-day
indicators is essential in generating trade entry and exit alerts.

Price Patterns and Breakouts

Technical traders and analysts use chart patterns,
indicators, and technical analysis tools to identify and confirm these
breakouts.

Resistance or Support Level: A breakout occurs when the
stock price breaches a well-defined resistance level or support level.
Resistance levels are price points where selling pressure has historically been
strong, preventing the stock from moving higher. Support levels, on the other
hand, are price points where buying interest has historically been strong,
preventing the stock from moving lower.

Symmetrical Triangle Breakout: This occurs when the stock’s
price moves out of a symmetrical triangle pattern, which typically signals a
continuation of the prevailing trend.

Head and Shoulders Breakout: A head and shoulders pattern
is a reversal pattern. A breakout below the neckline of this pattern can
indicate a bearish reversal.

Cup and Handle Breakout: This pattern resembles the shape
of a tea cup. A breakout above the handle portion is considered bullish.

Double Bottom or Double Top Breakout: These patterns
indicate potential reversals. A breakout above the double top or below the
double bottom can signal a change in trend direction.

Volume Confirmation: One of the critical
aspect of a breakout is that it should be accompanied by an increase in trading
volume to confirm that there is significant momentum behind the move.

This is typically done on a very granular level using
shorter timeframes than the indicator timeframe. For example, if a derivatives trader was generating signals using
5-minute options data bars then the volume analysis should be
using 1-minute or even tick-level data to ensure there was sustained volume
during the period and not just a single large trade.

Moving Averages

Moving averages help traders in filtering out the noise of
trading patterns and identifying key trend lines. A typical setup is to
generate a fast a slow-moving MA (the slow MA should be approx. 5x the fast MA)
and use the crosses as signals.

For example, the 5-minute moving average and a 30-minute
moving average (calculated using 1-min bar data) with a buy signal generated
when the 5-min average crosses above the 30-min average. It is important to use
the spot the clarifying the trade signals, so the spot should always be above both
moving averages for a buy signal.

Relative Strength Index (RSI)

RSI is a momentum oscillator that measures the speed and
change of price movements. It is the ratio of the total gains versus losses in
a given period (typically 14-time units such a 1-minute or 30-minute
bars).

A ratio
above 70 typically indicates an overbought situation and below 30 an oversold
situation.

RSI is
often combined with moving averages to confirm a signal and avoid trading just
prior to a trend reversal.

Overall,
momentum trading is most effective during periods when there is little news
driving market moves and the trading is driven more by intraday supply and
demand imbalances.

This article was written by FL Contributors at www.forexlive.com.

US:

• The Fed left interest rates unchanged as
  expected.
• The macroeconomic projections were revised higher
  as the economy showed much stronger resilience than expected and the Dot Plot
  showed that the majority of members still expects another rate hike by the end
  of the year with less rate cuts in 2024.
• Fed Chair Powell
  reaffirmed their data dependency but added that they will proceed carefully as
  they are trying to find the optimal level of rates. Powell also added that the
  soft landing is not the base case at the moment, although they are aiming for
  it.
• The latest US CPI came
  in line with expectations, so the market’s pricing remained roughly the same.
• The labour market
  displayed signs of softening although it remains fairly solid as seen also last
  week with the strong beat in Jobless Claims.
• The market doesn’t expect the Fed to hike again at
  the moment.

Australia:

• The
  RBA kept its cash rate unchanged as expected at the last meeting as
  they are seeing signs that the economy is indeed slowing and that will help to
  return inflation back to target.
• The
  data is supporting the RBA’s stance as the Australian jobs, wages and inflation data all remain lacklustre.
• The
  Australian Manufacturing PMI fell further into contraction while
  the Services PMI jumped back into expansion.
• RBA
  Governor Lowe in his speech reaffirmed that if inflation remains sticky, they
  will have to tighten more.
• The
  market expects the RBA to hold rates steady at the next meeting as well.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that the AUDUSD pair
eventually rallied back into the 0.65 resistance and then
sold off following the more hawkish than expected FOMC dot plot. The price
bounced on the support, but it’s now rolling over again as the sellers continue
to be in charge. A break below the support should open the door for a fall into
the 0.62 handle.

AUDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the recent
bounce got rejected from a broken trendline which
acted as resistance and started to fall again. The moving averages are
crossed to the downside, so the momentum remains bearish, and the natural
target should be the support of the range at 0.6370. That’s where we can expect
the buyers to pile in again with a defined risk below the support to target a
rally into the 0.65 resistance. The sellers, on the other hand, will want to
see the price breaking below the support to pile in even more aggressively and
target the 0.62 handle.

AUDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price got rejected from the downward trendline and the 61.8% Fibonacci
retracement level recently. The trend on this
timeframe is clearly bearish as the price has been printing lower lows and
lower highs. The break below the most recent lower low at 0.6404 suggests that the
sellers are likely to take the pair into the 0.6370 support. On the other hand,
if the price breaks above the trendline, we should see the buyers piling in to
target the 0.65 resistance.

Upcoming Events

Today we will see the latest US Consumer Confidence
report which surprised to the downside the last time and weighed on the USD in
the short term as Treasury yields fell. On Thursday, we will have another US
Jobless Claims data which keeps on showing strength in the labour market
maintaining the hawkish pricing in interest rates expectations. Finally, on
Friday, we will get the latest US PCE data.

This article was written by FL Contributors at www.forexlive.com.