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FOMC - What to expect (technically)?

Commentaries & Views

Certainly, the groundwork is laid out for a 75 bp hike, but will chairman Powell join the symphony of other world central banks (including the BoC again) in either surprising markets with a dovish 50bp hike? Or, perhaps provide forward guidance more watered down in aggression. Should the FED go for the full 75, we expect the market to respond to the downside, however, most likely in a muted fashion.

The chart below shows the SPY in a 4-hour timeframe, which has yet to consolidate the gains it has made recently in any real fashion, and the FOMC meeting could be the trigger. The yellow highlighted area represents a support zone stock bulls want to see hold for a continued run up.

Conversely, should the fed go 50 and/or provide forward guidance indicating a lighter touch moving forward, it would not surprise to see stocks make a beeline for the open gap denoted by the black arrow. Overall, the risk/reward still favors the long side swing in this trader’s opinion; recall that bear market rallies tend to surprise in their magnitude.

Gold is still fighting for $1650. The worst-case market reaction to a 75 bp hike would be a gold price that begins to underperform US stocks to the downside in the event of a pan sell-off. Should the FED surprise with one of the above-mentioned dovish hikes, gold bulls might expect a run to seriously challenge $1675 - 85, and higher, in short order.

Thanks and have a great day.

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