FOMC hike 25 BPS as expected

This Daily Digest will cover:

• 📊 FOMC hike 25 BPS as expected
• 🇺🇸 Risk rallies and USD sells off as Powell acknowledges inflation is falling
• 📈 ECB and BOE up today
• 🪙 Crypto rallies to new yearly highs but remains below key break up levels

The FOMC delivered the expected rate hike and frankly the expected mantra at the press conference that I laid out yesterday.

The market had the bit between its teeth going into the announcement and had already taken the Euro above 1.0900 before Powell held his press conference. He tried to be hawkish, mentioning inflation 100 times, but he also mentioned disinflation 16 times which was all the market needed to take the baton and run. Euro soared through the year’s high to trade 1.1033, Stocks rallied 2-3% and Crypto saw ETH test 1700 and BTC 24,300.

It is clear the market thinks inflation has peaked and the FED is near the high water mark in rates. There are more hikes coming but the question becomes, is it one more and stop at 5% or multiple hikes seeing the peak 5.25-5.5? For me, the real question is what happens after that? The market continues to price in cuts later this year which is fanciful in my opinion. I think we will see a long pause as the data slowly deteriorates and it will take a full blown recession to cause the FED to pivot early.

I will admit to being slightly disappointed by the Crypto rally (I have clearly been spoiled by the moves in January!) ETH held its next key resistance at 1700 perfectly and BTC fell way short of an attack on 25,000. No change in narrative here, but the momentum for the next move will come from the broader risk market than be Crypto specific. I have sold a little of my medium term longs out as momentum wanes. Through 1700 and 25,000 I will reload.

Today is the turn of the BOE and the ECB with both expected to raise 50 Bps. That is where the similarity ends as I expect the ECB to double down on more rate hikes whereas the BOE is likely to be a split vote and more signs of reluctant tightening. I have to issue my usual ECB caveat here as whilst every fibre of my being thinks long Euro/USD with a stop below 1.0930 is the trade, I have learned the hard way not to put my faith in the ECB at a press conference…

Good luck as always!