What will the Fed do today?

All eyes are headed towards the Federal Reserve decision today, which is likely to have a major impact on the markets and likely to last until the end of the week.

What’s the general consensus?

There has been a lot of talk over the past few weeks that the Federal Reserve is likely to slow down its tightening, by raising the Fed Fund Rate by 25bps in this meeting, instead of 50bps. Given the fact that inflation has been declining for over six months, in addition to the slowdown in economic activity, the recession could be around the corner.

What could possibly go wrong? 

Equities have been rising for over 3 weeks now, and SPX is showing more signs of resilience after closing last week well above its 4030 resistance area. The worst-case scenario would be if the Federal Reserve decided to keep its hawkish tone with another 50bps rate. Such an event could lead to a sharp sell-off and may exceed 2 to 3%, while a 50bps with a dovish tone might lead to stabilization.

What is the best-case scenario? 

Since the market has been pricing in a 25bps rate hike with a dovish tone, the best-case scenario would be if the Fed matches those estimates, which is likely to give equities another push higher, confirming the end of the bear market, especially if we close the week once again over the 4030 support level.

More clues are welcome

The most important factor in today’s event is the press conference, and the markets are looking for one clue: is the Fed considering any kind of rate cut this year or next year? This is the most important piece of news that everyone is hoping to hear something about it from Chair Powell. If he confirms or hints about a possible rate cut, that would be a double bullish factor for equities, and SPX may rally by 3-4% and maybe 5%.

Short-term trades update

DXY once again failed to sustain its gains yesterday and stalled back to 102.00 after reaching 102.60’s during the European session, while the RSI is still suggesting that another push higher is due. Therefore, we maintain our bullish call on the short term towards 103.0 as long as 101.50 remains intact.

EURUSD: first target achieved

EURUSD touched our first target mentioned in our previous reports at 1.08. The pair managed to bounce off that support and closed the day around 1.0865. However, the RSI indicator remains bearish, which keeps the possibility for another leg lower towards our second target at 1.0760. Ahead of the Federal Reserve decision, you have two options, either close your positions or move your stop to break even to protect the position from any possible losses.

GBPUSD near final target 

GBPUSD declined for the third day in a row, reaching our first target mentioned in our previous reports at 1.2320 and continued to as low as 1.2290, while our final target for this decline stands at 1.2270, which could be seen later today. Ahead of the Federal Reserve, you can also manage your risk, by either closing your position with the current profit or moving your stop to breakeven to protect the position from any potential losses.

Gold holding support

Gold declined yesterday to as low as $1901, short of our first target mentioned in our previous reports at $1900. Gold also managed to bounce off its uptrend channel and regained $1925 during the Asian session today, while the RSI indicator continues to suggest that another leg lower could be seen ahead. Therefore, ahead of the Federal Reserve decision today, you also have two options, either to move your stop to breakeven or to close with the current profit.

With that being said, the three short-term trades are currently in profit, and you can choose between closing them with a profit or risking losing the profit only by moving the stop to breakeven and waiting for another trade in the coming days.

 

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