FOMC Day! This is how I'm going to play it.

Global investors are eagerly awaiting the upcoming FOMC meeting scheduled for July 26, where Federal Reserve Chairman Powell will disclose the decision regarding a potential rate hike at 2 p.m. ET on July 26.

The US Federal Reserve had embarked on an aggressive rate hike campaign since March 2022 but paused the rate increases in June. However, the expectation is that they will resume hiking interest rates during the current Federal Open Market Committee (FOMC) meeting, with a projected increase of 25 basis points.

The big question on everyone's mind is whether this latest rate hike will mark the end of the Fed's tightening cycle. Notably, inflation has been declining rapidly and has even fallen below market forecasts. The latest data indicates that the June Consumer Price Index (CPI) in the United States was 3%, which is slightly lower than the market's expectation of 3.1%. This trend has led to a growing consensus among market experts that the Federal Reserve may conclude its aggressive campaign against US inflation, a campaign that has been one of the most robust in the past 40 years, on July 26.

Former Fed Chair, Ben Bernanke, has also expressed his opinion, suggesting that the Federal Reserve might decide to halt its current credit-tightening efforts after implementing the widely anticipated interest rate increase this week. After the 25 basis points rate hike in July, the federal funds rate range would rise significantly, reaching a range of 5.25% to 5.5%, which would be the highest level seen since 2001.

The focal point of attention will undoubtedly be Chairman Powell's press conference during the meeting. He will have the opportunity to provide more detailed insights and recommendations to market participants. The market will closely analyze any hawkish comments made by Powell, as this could potentially signal the likelihood of further rate hikes beyond the current one.

In conclusion, the FOMC meeting and Chairman Powell's announcements carry immense significance for global investors. The decision on the rate hike will have immediate impacts on various financial assets, and Powell's comments during the press conference may either support or challenge the market's performance in the short term. As the world watches these developments closely, investors will be keen on adapting their strategies based on the outcome and any future guidance provided by the Federal Reserve.

BTC-USDT 1-day chart

Many people I talk to, and many traders who are active on Twitter, are looking at a retracement towards the daily fvg level, which is located between $27,000 and $28,200. For them, this is the ideal level to buy the dips and anticipate further upward movement. I am also keeping an eye on this level since the price level is located in discount area (Fibonacci Retracement Golden Pocket)

However, I believe we will only reach this price level if the outcomes of the FOMC event are negative for risk-on assets. It's essential to consider a bullish scenario as well. What if the price bounces strongly during the FOMC event? What would you do then?

My approach in that case would be as follows:

BTC-USDT 4-hour chart

What we are witnessing is a breakout of the accumulation range, placing us at the price level of $29.2k. Additionally, we have observed a significant increase in Open Interest, this data can be obtained from https://coinalyze.net/. This indicates that many traders have been eagerly waiting for BTC to choose a direction and have positioned themselves accordingly. This could potentially mean that a substantial number of short positions have been opened, which increases the likelihood of a short squeeze once we start moving up. If this indeed is the manipulation phase, there is a high possibility that we will enter the distribution phase shortly, and the FOMC event may accelerate this process.

Another reason why I see the likelihood of this pattern playing out is because it has occurred before, not too long ago. In the months of May and June, we saw the three phases unfold in the exact same manner, which reinforces my bias. However, the FOMC event will play a significant role in determining how this pattern will further develop.

SPX 3-day chart

The stock market has been outperforming the cryptocurrency market for weeks. The S&P is only about 6% away from its All-Time High, while the crypto market is much lower. Whether the stock market will make new highs largely depends on the macro-economy and its growth. The FOMC event will also have a significant impact here.

DXY 1-month chart

The DXY seems to be bottoming out on higher timeframes as the price sweeps the equal lows in a monthly fvg. It's highly likely that the USD will outperform other markets (from the basket) in the coming period. A strong DXY typically means that risk-on assets will perform weakly, so keeping an eye on the DXY in the upcoming months is crucial.

Written by: Luuk Koolen