Fed Decision: It’s All About The Outlook For Terminal Rates
November’s U.S. CPI report surprised lower and the market rallied, providing bulls very good profits yesterday. However, gains faded quickly with the DAX and British pound giving up virtually all gains towards the end of the trading day. The euro held above 1.06, for now.
Federal Reserve rate decision is due today at 19:00 UTC, followed by the Fed press conference 30 minutes later.
We will learn how much of the Fed pivot was already been priced in over the past months. Markets are forward-looking and focusing on the long-term and thus market participants are looking for hints about the outlook for terminal rates and what the central bank signals after its rate decision. The Fed press conference and Jerome Powell’s statement will therefore take center stage.
All eyes will be on the Fed’s dot plot forecasts and the path for interest rates. If policy makers send a dovish signal and suggest a pause in rate increases in March, sooner than expected, markets could further rally. However, we bear in mind that the market is forward-looking and has much of the move already priced in. Thus, if a dovish pivot comes sooner, the next tightening cycle could also come sooner. So, in the end, it’s all about premature speculation.
After days of ongoing upward momentum, the risk is tilted to the downside.
Our trading ideas for today 14/12/22:
EUR/USD
Long @ 1.0670
Short @ 1.0585
GBP/USD
Long @ 1.2380
Short @ 1.2340
DAX® (GER40)
Long @ 14490
Short @ 14440
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