04.05.202206:53 Forex Analysis & Reviews: The Ukrainian-Russian conflict, day 70. The Fed meeting will be held today

The key indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - ended Tuesday with barely noticeable growth, but in general, they continue to be located near their lowest price values for the year. Thus, the correction continues, and today an important event will take place - the Fed meeting. Naturally, we expect that there will be a reaction to this event in both the currency and stock markets. But this reaction may not be exactly what many are waiting for now. The fact is that there has been talk about a 0.5% rate increase in May since the last meeting. Thus, the markets had plenty of time to work out this factor in advance. Therefore, it is quite possible that the dollar will not show impressive growth today, and stock indices will not show an impressive fall. Recall that the rate increase, immediately by 0.5%, is a very positive factor for the currency and negative for stocks and other risky assets. The higher the rate becomes, the higher the yield is shown by government bonds and deposits, that is, the least risky assets. Accordingly, the demand for them begins to grow, and it grows due to a decrease in demand for stocks or other risky assets like cryptocurrencies. That is why when the rate rises, the stock market shows negative dynamics. That is why a long cycle of rate hikes may lead to a serious fall in the stock market, as we have been forecasting for the past few months.

But, despite expectations for an even greater correction in the US stock market, there may not be any fall today. The NASDAQ index, for example, has adjusted by 20% over the past few months, which is quite a lot. This means that the market has started to work out all future rate increases in advance. However, it is also worth recognizing that if the beginning of the reduction of the Fed's balance sheet is announced today, this may become another "hawkish" factor. Also, if the Fed raises the rate immediately by 0.75%, this will be a serious pressure factor on stocks and indices and will provide strong support for the US currency, which has been trading as high as possible against the euro and the pound over the past few days.

As for the geopolitical conflict in Ukraine, there is no new data now. Moscow is trying to stop the flow of weapons that is pouring into the Square from the West. Kyiv said that this would not stop military aid from the European Union, the United States, and other countries in any way. The discussion of the sixth package of sanctions in the European Union is slightly delayed, it is expected that it will be adopted on May 9-12. The lend-lease for Ukraine has not yet been signed by US President Joe Biden, but it is believed that it will be done in the near future. The offensive of the Russian army has stopped in almost all directions.