Investors have much to digest. The new Chair of the Federal Reserve appears to have finally convinced the market that the FOMC’s call last December for three rate hikes was probably right and that there is a greater chance of four hikes than only two.  

Investors also have to contend with US tariffs on steel and aluminum justified on national security ground. Although we argue the most likely scenario is not a tit-for-tat retaliation but a WTO challenge, the risk of a trade war is not inconsequential. 

Meanwhile, accumulating data suggests the global synchronized growth, which was a key theme at the end of last year and the start of this year, may be easing. Some real data has confirmed the softness seen in the numerous surveys. At the same time, after recovering for the past couple of weeks, equity markets slid over the past week, renewing anxiety.  

Many ask about the proverbial put that the Federal Reserve seemed to have under Powell. Given that the valuations are judged to be elevated, Fed officials have taken the recent jump in volatility in stride. However, should market disruptions materially impact the economy or threaten the Fed’s mandate, officials are likely to respond. To say the same thing in the vernacular, the put exists, but the strike is lower. 

The Dollar Index reached almost 91.00 on March 1, the highest level since January 18 before selling off.  At the highs, it was threatening the upper Bollinger Band for the first time in four months. However, it met a wall of sellers, around the time that the tariffs were announced. There were follow-through losses, and the Dollar Index retraced 38.2% of the rally since February 16 (~89.10) and the 20-day moving average near 89.80. It closed poorly, and the next support is seen in the 89.25-89.60 band. The MACD and Slow Stochastics have not turned down like the RSI, but the MACD could cross lower next week.

The euro was sold through $1.22, which was the neckline of a possible double top.  It closed below it on Wednesday and saw additional selling on Thursday that briefly nicked the 38.2% retracement of the euro’s advance since early last November (~$1.21750). The euro was sold to levels last seen in the middle of January. However, it recovered sharply, and posted a key reversal, closing about Wednesday’s high.