The markets - at least for today - breathed a sigh of relief as Fed Chair Powell took 75 basis points off the table, but did say that 50 bp hikes are in play for the next two meetings and that inflation is still much too high.

To give a point of reference, before the rate decision, the market was 100% priced in for 50 bps through the September meeting (4x 50 basis points) and 51% that there would be a 75 basis point hike by July.

The market had also priced in 3% by the January 2023 and a terminal rate of around 3.5% by August 2023. The rate into the meeting today was at 0.37% (with Fed Funds range of 0.25% to 0.50%%). The 50 BP hike takes that to 0.87% currently (0.75% to 1.00% target). Moving to 3% implies an additional 210 basis point to January 2023. There are 5 more meetings to the end of the year. If the Fed does 50 +50 +25 +25 +25, that would take the rate to 2.50% to 2.75% or 2.67%.

Fed Funds outlook
Fed Funds outlook before the FOMC decision today.

In any case, the market was relieved.... TODAY (tomorrow will be key for follow through, however).

  • The dollar moved lower.
  • Stocks moved higher.
  • US yields moved lower.

Starting with the currency markets, the strongest to the weakest currencies had the "risk on" AUD and the NZD as the runaway strongest of the majors. The USD and CHF - typical safe havens - were the weakest of the majors with the USD the weakest of those two (see rankings and % changes of the major currencies vs each other below). The USD fell -2.32% vs the AUD and 1.79% vs the NZD. Versus the other currencies, the greenback fell by at least -0.66% (vs the CHF).

The USD is the weakest of the major currencies today

The DXY fell -0.91% to 102.52 today after peaking on Monday at 103.928 - the highest level since December 2002. However, that high only took out the end of 2016/beginning of 2017 high at 103.65 by 27 pips before stalling and falling.

The price of the DXY today fell below its 200 hour MA for the first time since April 21. That MA comes in at 102.802. The current price is at 102.515. Tomorrow, staying below the 200 hour MA is key. Stay below keeps the sellers in play. Move back above, and there can be disappointment. Remember the counter trend trades need to prove they have some staying power on technical breaks. Failures are not an option.

Having said that, the 38.2% of the move up from the last trend leg higher (from April 21) comes in at 102.332. Getting below that level is ALSO key for the short term.

There is work to do and trending markets are impatient. So getting staying below the 200 hour MA and getting below the 38.2% retracement level will be eyed TOMORROW. A failure to see follow through selling could lead to a reversal on the disappointment (don't go back above the 200 hour MA).

The dollar index fell below the 200 hour MA today

For the US stock market today, the major indices rallied strongly and closed near session highs. The final numbers are showing:

  • Dow industrial average rose 932.27 points or 2.81% to 34061.07
  • S&P index rose 124.69 points or 2.99% to 4300.16
  • NASDAQ index rose 401.11 points or 3.19% to 12964.87
  • Russell 2000 index rose 51.06 points or 2.69% to 1949.92

Technically, both the broader S&P and NASDAQ index are closing right above their 100 hour MAs at 4296.19 for the S&P (vs 4300.16 close) and 12945,84 for the Nasdaq index (vs 12964.87 close). Tomorrow a gap higher would put some space between the MA and the price and give the upside some additional room to roam. If the price opens lower or near current levels, there is the potential for the day after hangover after the partying today.

For the US debt market, yields moved sharply lower across the curve after trading to - or near - new cycle highs before the Fed decision.

  • 2 year 2.658%. The high for the day reached a cycle high of 2.844%
  • 5 year 2.926%. It to reach a cycle high of 3.068% today
  • 10 year 2.946%. It reached its cycle high of 3.011% today
  • 30 year 3.04%. It reaches cycle high of 3.073% on Monday

Have rates reached a short term peak? If so, there could be further momentum moves in today's directions in the other markets.

In other markets:

  • Gold rallied on the back of low rates and lower US dollar. It is trading up $50.87 or 0.85% at $1882.90
  • Silver erased early declines in closed up $0.46 or 2.05% to $23.00
  • crude oil remained elevated on the back of EU sanctions I would look to phase out Russian oil by the end the year. The price is trading up $5.14 at $107.54
  • Bitcoin rallied over $2000. to $39,837.59.

Tomorrow is key. Can the the DXY stay below its 200 hour moving average at 102.80? Can the broader S&P and NASDAQ index move above and away from its 100 hour moving average? Is the top in place for US rates (for now) and continue to push lower?

Those will be questions will need to be answered if the relief today sees continuation or is just hangover from the partying after the Fed decision. The levels will help tell the story.