Why is tomorrow an important day for markets in general?
Tomorrow is the Federal Reserve meeting for the monthly interest rate decision, and why is it considered an important decision??
When the Federal Reserve began raising interest rates to reduce inflation levels, which reached approximately 5% at the time, its goal was to reach 2%, and inflation is currently at 2.8%.
What does raising interest mean?
When interest is raised, capital owners begin to place their money as deposits in banks and obtain interest without any significant risks, in exchange for receiving a rate of 5.5% at peak times. That is, if a person puts a million dollars in the bank as a deposit, he will return with an annual profit of 55 thousand dollars without any significant effort, and then the owner of the money wonders: Why do I put my capital in projects and expose myself to risk and fatigue, while if I put my capital in the bank, it will grow by 5.5% annually? ?
The bank will benefit from collecting liquidity in the market to reduce supply, increase demand, and raise the currency price, thus returning goods to normal prices and reducing inflation rates.
But when interest rates are raised and the money is directed to the bank, unemployment rates will rise because liquidity is preserved in the bank and the reluctance of businessmen to invest and open projects, in addition to the rise in interest on all borrowers, including ordinary people, large and small companies, even existing banks that borrow in the first place. From the central bank! This ultimately constitutes a burden on everyone if it continues. Therefore, there is a great risk of continuing to raise interest rates, which prompted the European Central Bank to reduce interest rates recently to stimulate the markets, combat unemployment, and prevent a recession.
It is also important to know that if the Fed does not follow the example of the European Central Bank, which had previously taken the first step towards the reduction, there will be a gap between them. Therefore, it is possible for the euro to lose against the dollar due to the high interest on dollar bonds against the euro. Is it politically and economically possible to take such a step? A dangerous step against the European Union by an ally like America?!
What concerns us in the crypto market and where is the problem?
If the interest rate is raised after all that was mentioned above, there will be greed and a strong trend towards the dollar, which will push huge liquidity towards the dollar and thus a decline in the digital currency market, and it may be a rather large decline. However, in the event of a reduction, investors will read a signal saying that the current inflation levels are acceptable. We have approached the goal. We will begin lowering the interest rate so that the markets can recover and take a rest for the warrior after a long series of raising interest. Consequently, investors will begin withdrawing their money and pumping it into the markets, which will raise the market value of risky assets, including Bitcoin and the digital currency market in general.
where is the problem?
The problem is that after the interest rate was reduced by the European Central Bank, the markets priced in the hope of a reduction by the Fed, and it is possible that fixing the interest rate alone could constitute a problem for the market in general and a decrease in digital currencies in particular because they are sensitive markets affected by any news, so what if the Fed decides to raise it?? There will be a significant decline and panic among investors, which will cause a decline greater than the impact of the event itself, so the decision tomorrow is different from any previous Fed decision.
The best advice currently is to stay away from futures contracts currently due to the high price volatility and maintain entry points with a portion for consolidation in the event of a decline and just be patient.
In the end, you may not read and understand anything I mentioned, and if you just be patient, you will get the same results as any curious person who knows everything mentioned above, but I wrote this for curious people like me who like to try to understand how the market works.
