FOMC hikes 25bps, as expected. More rate hikes to come?

For weeks now, markets have been pricing in a 25bps rate hike and a hawkish Fed. The Fed brought it with the 25bps rate hike, but Powell delivered what seemed like a less hawkish press conference than expected. Two important take aways from the statement were 1) the Fed repeated that “ongoing” rate increases will be appropriate and 2) inflation has eased but remains elevated. This left traders to wonder just how hawkish Powell would be during his press conference.

Everything you wanted to know about the Federal Reserve

During the press conference which followed, Powell noted a few things one would expect, but also some comments that seemed “less hawkish”. He mentioned that this is the first time could say that the disinflationary process has started. He also noted that reducing inflation is likely to require “below-trend” growth. And he skirted around a question regarding whether the committee discussed a rate hike “pause” before raising rates again. For a complete recap of today’s FOMC meeting, see my colleague Matt Weller’s comments here. In addition, the “buy the rumor, sell the fact” card was also in play for this meeting (see first sentence!).

As a result of the less than hawkish comments and market positioning going into the meeting, the US Dollar sold off afterwards. The US Dollar Index (DXY) broke aggressively lower, back below the top trendline of its recent channel and below horizonal support from May 30^th, 2022, at 101.29. The next support for the DXY isn’t until the psychological round number support level of 100.00. Below there, price can fall to support dating to March 2022 near 99.42. In order for the bears to turn, it may take a move back above yesterday’s high of 102.60. The next level of resistance is at the highs of January 12^th at 103.29.

Source: Tradingview, Stone X

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Opposite of the DXY is the EUR/USD. The pair had a stellar breakout today, reaching a high of 1.1002 after the Powell’s press conference. EUR/USD had been rising in a channel until it ran into horizontal resistance at the highs of April 21^st at 1.0936. Since mid-January, the pair has been in an ascending wedge and broke below it on January 31^st. Today, after the press conference, price moved back into the wedge and above the prior resistance at 1.0936. If price continues to move higher, the next resistance is at the highs of March 31, 2022 at 1.1185, then the 61.8% Fibonacci retracement level from the highs of 2022 to the lows of 2022 at 1.1221. First support isn’t until the lows of January 31^st at 1.0936, then additional horizonal support at 1.0802. If EUR/USD breaks below there, the 50 Day Moving Average comes into play at 1.0658.

Source: Tradingview, Stone X

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Today’s FOMC meeting was uneventful. However, Powell’s press conference which followed provided less hawkish comments for the markets to feast on, which sent the US Dollar and yields lower, while Gold and stocks moved higher.

*Caution: ECB Monetary Policy meeting coming up. Expectations are for a 50bps rate hike and a hawkish press conference. Manage positions accordingly.

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