The Fed Wreaked Havoc on Wall Street, With US30 Setting Nearly 2 Year Lows
US30 Analysis
The Federal Reserve has implemented its most aggressive rate hike cycle since at least the mid-1990s, as it raised them by another 75 basis points last Wednesday. Rates have now entered restrictive territory, at 3.00-3.25%, which is the highest level in fourteen years. [1]
It reiterated its commitment to bring inflation down and pointed to more tightening ahead, in order to achieve its goal, making the relevant upgrades to its economic projections (SEP). Officials now see the median rate at 4.4% by the end of the year, from 3.4% previously, implying 100-125 basis points worth of hikes in the two remaining policy meetings. The median terminal rate forecast is at 4.6% in 2023.
These forecasts are closer to market pricing, with CME's FedWatch Tool projecting rate at 4.5% by the end of 2022, going as high as and as 5% next year. [2]
Furthermore, policy makers seem to have given up on any effort to avoid plunging the economy in recession, in pursuit of restoring price stability. Chair Powell said that no one knows if this process "will lead to a recession and if so how significant that recession would be", adding that "we have got to get inflation behind as. I wish there was a painless way to do it. There isn't". [1]
The Fed swings a big wrecking ball that demolishes everything, except the US Dollar, which has rallied on the back of the aggressive tightening, re-emergence of recession fears and other factors. EUR/USD hit new 20-year lows today, GBP/USD crumbled to the lowest levels ever and Wall Street suffers.
US30 in particular, dropped to its lowest levels in nearly two years on Friday, in another poor month, erasing nearly 7% month-to-date. It is now in danger of sub-29,000 moves, although a fresh catalyst will be likely needed for bears to breach 28,423 and look towards 27,578.
On the other, hand the Relative Strength Index is in oversold territory and US30 may find some reprieve and the chance to reclaim 30,000. However, a sustainable return above mid-30,000, looks like a tall order under these conditions.
This week's economic calendar has many key data points that can determine its trajectory and spark volatility. Markets will be awaiting GDP and PCE Inflation updates, as well a series of Fed speakers, including Chair Powell.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 26 Sep 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20220921.htm | |
| Retrieved 23 Sep 2023 https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html# |
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