Powell Not as Hawkish as Market Priced In…But Not Dovish By Any Means
Crypto Bounces with Risk Assets
So the highly anticipated FED meeting came and went and all things considered…we feel we are exactly where we were before the meeting minus a little bit of cleaner positioning in the market. If you will recall yesterday’s piece we identified 3 scenarios with the most likely being the following:
1. The FED hike 50bps and no change in rhetoric – this is the most likely scenario for us. There are 110 bps in hikes priced in over the next 2 meetings – that is a lot. So in this scenario we foresee the USD selling off and risk rallying as the market takes some profit. The market is perhaps expecting a more aggressive FED and so will look to reverse the long USD, short risk trade it has on. However, whilst this may see 1-1.5% lower in the USD we feel the USD should be bought on any such dip.
Now this view was based upon the fact short term positioning had got incredibly skewed toward a very hawkish FED and so chances were they would disappoint the market. All it took was for Powell to rule out 75bps hikes and the USD and yields rolled over. Risk flew with equities and crypto gaining as people unwound very heavily subscribed views: short risk and long USD. However, we are seeing this move unwound. Ultimately whilst the FED have ruled out a 75bps hike they confirmed subsequent 50bps hikes and are still way ahead of any other central banks in their hawkish stance. As written above, we bought USD into the sell off yesterday and sit short GBP/USD on the day. We expect USD exceptionalism to resume now and we also have the BoE up later on. With UK data being dire of late, we struggle to see how the BoE can be hawkish. It very much feels like it will be a reluctant hike today.
Risk has started to come under pressure following the rally post the FOMC however crypto markets are actually holding in quite well. This is something to keep an eye on as either it is lagging the move in risk or it is setting the tone and other markets need to keep an eye on it. Gut instinct is telling us crypto will drift lower over the day as risk comes under pressure but time will tell. The levels, extremely short-term, are defined as $40000 and $3000 for resistance levels in BTC and ETH respectively. Crypto markets will remain driven by macroeconomic themes. What is clear following yesterday’s FOMC meeting is that data is going to be watched even more closely now. Any indication inflation is ticking higher then 75bps hikes will be back on the table. Economic data that implies the US economy is still firing on all cylinders may just allay people’s fears that growth is going to suffer.
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