Traders Adjust Their Expectations for Fed Action

1月4日

From the beginning of November to the end of December 2023, the dollar index futures price fell by approximately 5.5%, according to the CME exchange. The weakening of the USD was caused by the sentiment of traders who expected the Fed to cut interest rates in March. As a result of the sentiment that prevailed at the end of 2023, stock indices, gold (setting a historical maximum on December 4) and cryptocurrencies rose.

However, the start of 2024 indicated a sharp change in sentiment, with the dollar index futures price rising more than 1% during the January 3-4 sessions.

This can be interpreted as:
→ during the pre-holiday period, there was a certain emotional component that helped to look into the future with optimism;
→ after the end of the holidays, market participants adjusted their expectations regarding the easing of the Fed's actions.

Data released yesterday showed that there is no clear indication that the Fed may start cutting rates, as its members still see the need for policy to remain restrictive for some time.

That is, in the first days of 2024, there was a correction of bullish sentiment at the end of 2023. In the cryptocurrency market, which is characterised by a high degree of margin (opening positions with borrowed funds), the correction turned into an avalanche of sales — the BTC/USD rate dropped rapidly to the level of $41,000, forming a false bullish breakout of the consolidation zone at the end of 2023, which we wrote about yesterday .

We also note the decline in the NASDAQ technology stock index, which, according to Bloomberg, showed the worst start to the year since 2001 (the time of the dot-com crash).


The NASDAQ-100 chart shows that:
→ the stock index price is still within the uptrend (shown in blue);
→ the price was within the intermediate correction (shown in red), forming a flag pattern;
→ the psychological level of 17,000 served as resistance.

The price may be supported by:
→ the psychological level of 16,000, which was broken by the bulls after some consolidation in the second half of December;
→ the median line of the ascending channel;
→ a level of 50% of the A-B growth impulse, located around the level of 15,500.

Price action near these levels (if reached) will provide more valuable information about how much sentiment has changed since the bullish end to 2023.

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