The long-awaited July FOMC meeting is finally upon us where rates markets are pricing in a sure thing for a 25bp hike (even a small chance of a 50bp), the question that traders will be looking for to be answered is “is this it?”. With a growing number of economists calling this the top in rates, butting up against the FOMC June statement and unwavering Fed speak since, giving guidance that there will be two more this year (including July if it happens).

This sets traders up with an intriguing FOMC meeting, with the accompanying statement and Powell Presser sure to see some volatility as traders look for clues as to what’s to come. With the background of recently cooling inflation, any language around the previously released June dot plots and whether they are still a reasonable estimate of future rate movements will likely be key.

Fed Futures odds:

Source: CME Fedwatch tool

Tis seta traders up with some unique opportunities as the battle between the Market and the Fed should see some real volatility in both direction as market participants digest the statement and then Powell’s presser, which in the past, has contradicted somewhat traders perception of the statement.

Charts to watch:

DXY – The US Dollar Index

It’s been straight up since mid-July after DXY bounced from extreme oversold levels, breaking through and holding the key S/R (and psychological) 101 level, which has held as support in the last couple of sessions. Despite this recent rally DXY is still in the oversold half of it’s daily RSI, a hawkish Fed pushing back against the market today would likely see DXY push to test the next major S/R level at 102.

A dovish Fed could see the recently established support at 101 seriously tested. In my opinion there is more chance of an upside surprise, given the market seems to be leaning towards pricing in a Powell capitulation.

US 10-year government bonds

Government bonds are an asset. I think a lot of CFD traders are missing great opportunities in, in the current climate of rates and inflation taking center stage they are one of my favourite markets to trade with some great range trading opportunities.

Looking at the chart of the US 10-year with the yields superimposed to see the negative correlation between the two (when you trade bonds, you trade the price, not yield) Over the last twelve months the yield on the 10-year has tested and subsequently struggled to stay above 4%, this turn lower in yields at this level gives a bond trader an opportunity by buying the bond price. Todays FOMC should see some volatility in yields, I recommend keeping an eye on these over the coming days for some good trading opportunities as yields hit pivotal levels.

Today’s FOMC decision is due out at 18:30 GMT