February 20, 2023

Upcoming FOMC Forebodes Recession Fears

Frank Cabibi

Today is President's Day in the US, so only futures are open. None are making any decisive moves. The recent rate hikes and statements in the last FOMC sent mixed messages reverberating through the USD and equities market. Investors wait to grapple with the idea of stronger bond yields and an unmoving dollar.

Should You Trust Technicals or Fundamentals?

Right now, technicals and fundamentals are telling us different things. If you look at a price chart of dollar pairs, you would probably look to short. However, by looking at a chart of treasury yields, you may look to long dollar pairs.

Dollar breaks the trend line but rejects Friday's highs.
US10Y bonds test resistance and form a potential double top.

Bond yields nearly hit 4% on Friday before turning back the other way. Now yields are creeping back up again. If they continue to move higher, the dollar will likely turn positive again. Again, this depends on further clarification from the Fed on Wednesday.

FOMC Meeting Minutes Expectations

The general consensus seems to be that 25 basis points will be the new decision going forward until 2% inflation is hit. However, recent comments about the frequency of these hikes could become higher, says Barkin on the Fed team.

Another member of the Fed committee they will need to increase rates until inflation seems more in control, but he didn't specify by how much.

Inching interest could still help pave the runway for a soft landing, but it probably will still cause a higher bond yields and USD over time.

EdgeFinder Picks

Right now, USD is strongest on the EF readings. Here are a couple of the strongest buys and sells.


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