Expectations for rate cuts strengthened in global markets yesterday with ECB Chair Draghi's comments igniting a rally. Of course, focus turns to Chair Powell this afternoon.
Markets are pricing in over 2 cuts by year-end and the earliest cut in July.
With no anticipated hike in rates, today's decision is likely no cut with signaling to cut in July by either a change in guidance and further reiteration from Chair Powell.
If the FOMC cuts rates that would likely propel us to new highs in Equities and also Fixed Income instruments with selling in the Dollar. I will resend updated Levels if there is a reset required.
Today reminds me of other asymmetric risk events like Brexit that saw extreme volatility. The likely scenario is we continue to grind higher; however, with so much anticipation for an outcome, the risk is clearly a shock to the downside for both equities and fixed income.
Keep an eye on the extreme positioning in the upper edge of the SP500 weekly option implied move, and Levels where high probability for reversion occurs.
All the best,