01.26.2022
There is a lot that the markets are assuming already.
4 hikes are priced and it is assumed that the FED will announce the end of QE and the beginning of QT. Equity markets have adjusted lower (Nasdaq ~ 20%) under the assumption that the FED will remove accommodation and start pivoting the other way.
There is a ton of political pressure on the FED. Both the PRESIDENT and CONGRESS have urged the FED to fight INFLATION, which is running at its highest in decades (since the 80’s).
We might be entering a tightening period, one where liquidity is not readily available and markets have to adapt to that new paradigm.
Our take is that the markets have already assumed to much and that this process will be methodical and slow. In other words, the band-aid will not be RIPPED, but it will be removed.
Under this assumption, we expect a RISK RALLY to ensue in the next days, weeks. The charts, which represent PARTICIPANT BEHAVIOR, suggest a similar outcome.
NQA DAILY (NASDAQ FUTURES) – This chart tells us that there is a BOTTOM BEING CARVED. We base our analysis on PRICE and PRICE ACTION, as to us, that is the ultimate differentiator and truth teller.
How will the USD do in this scenario?
The short answer is that it will probably to poorly. More so against HIGHER BETA FX.
We like currencies like the AUD to perform well. We are more neutral EURUSD and slightly dovish JPY.
AUDUSD DAILY CHART: This chart shows how AUDUSD entered a BUY ZONE and has cleared it already. There will be some volatility and we are, as always, prepared to be wrong by having STOPS in place.
Our positioning is LIGHT, considering the magnitude of the event, this could be one of the most PIVOTAL FED MEETINGS IN HISTORY.
We will have a much cleaner landscape after today and will add, subtract, accordingly.
In addition, we have Bank of Canada as well, which presents another interesting opportunity.
As always, please make sure you email us your questions (info@bcmptr.com).