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Signs of a Fed pivot or just a drop in the countertrend?


Signs of a Fed pivot or just a drop in the countertrend?

There’s only one problem with the Fed pivot narrative: Investors aren’t buying it (yet, at least)!

New month, new district… new market trends?

This week is a start for a violent trend reversal in the major themes of the past month, quarter and year to date. Major global indexes are up 5-7% from weekend lows, the US dollar jumped nearly 500 pips from last week’s high against most of its major rivals, and even l ‘ or a won plus 100 points.

After lower than expected interest rate hikes from the RBA and the Bank of Poland, despite the UN imploring central banks to slow interest rate hikes, the underlying narrative is that we could be on the verge of a potential “pivot” from the Fed to more interest rate lens increases.

There’s only one problem with this narrative: traders aren’t buying it (yet, at least)! Looking at the CME’s helpful FedWatch, the term Fed Funds contract traders still present a roughly two-in-three chance of another 75 basis point interest rate hike in early November and nearly 70% of chances of another 125 basis point rate hike at the end of the year. Instead, the recent price action looks more like a temporary countertrend move from the extreme levels of the past week.

Ironically, by easing financial conditions and turmoil during the September march, stock market rally and dollar recovery from weekly gains PLUS it is likely that the Fed will continue its course to stamp out inflation at all costs. We also saw US economic data ranging from Consumer Confidence to Core PCE to Initial Jobless Claims to this morning’s ISM Services PMI, all better than expected, suggesting that the US economy is holding up relatively well. well so far.

Technical view: USD/JPY

Looking at the pair’s daily chart USD/JPY, the most policy-sensitive currency pair, rates are currently consolidated near 32-year highs midway through 146.00. Traders remain cautious about pushing the pair higher at this time given the short-term risk of BOJ intervention, but the longer-term trend undoubtedly remains to the upside, so this is no This is one of the questions of the times before our USD/JPY trips are above the level after 1990.

Traders at Clever also noted that the consolidation over the past month has eased the overbought condition in the pair’s RSI indicator, allowing the unit to correct in time rather than price and potentially opening the door. way to another higher leg in the coming weeks. A sustained break above 146.50 could pave the way for a continuation towards 150.00 as the BOJ responds, while only a break below previous resistance turned support at 136.50 would challenge the long-term uptrend

Source: TradingView, StoneX

By Matt Weller, CFA, CMT, FOREX.com » Official Site

Signs of a Fed pivot or just a drop in the countertrend?

Disclaimer: The information and opinions contained in the report are provided for general information only and do not constitute an offer or a solicitation concerning the sale or sale of foreign exchange contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy and is not exhaustive, and assumes no liability for direct, indirect or consequential damages resulting from than anyone he trusts such information.




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