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Nasdaq flies ahead of FOMC verdict

Traders bought the dip in expectations of a less hawkish Fed's meeting today.

The tech-heavy Nasdaq 100 index soared Wednesday, trading nearly 4% stronger during the London session, completely erasing yesterday’s sharp losses.

Focus on Fed

Later today, the Fed delivers the decision on monetary policy. There should not be any changes, and the central bank will likely confirm that the lift-off will begin in March. However, the discussion regarding the balance sheet reduction will be crucial.

Considering the recent crash in US stock markets, the Fed might sound somewhat dovish when talking about the balance sheet run-off in an effort to stabilize the markets.

This year’s sell-off in US indices has largely priced in the tightening path ahead with the potential for stocks to stabilize from here. Fed Chair Powell, who has been described as ‘Goldilocks in a suit,’ will be treading a fine line, neither too hawkish nor too dovish, displaying credibility in the fight against inflation without spooking the current precarious market mood, Victoria Scholar, head of investment at Interactive Investor, said

Still, the US yields trade near their cycle highs, with the 10-year yield spotted slightly below 1.8%, while the 2-year yield advanced above the 1% psychological level, putting further pressure on risk assets, such as stocks.

The markets are currently expecting three to four rate hikes in 2022, as reflected by the fed funds futures.

Volatility continues

The daily chart looked really oversold. Thus, a relief rally was bound to happen, but this buying pressure is intensive, surprising many investors.

If the index closes above previous lows in the 14,460 USD area, we might have seen the bottom yesterday, with a possible strong rally toward the 200-day moving average (the green line) at 15,000 USD.

Alternatively, if the Fed confirms the hawkish stance and sellers return to the markets, we might see a quick decline toward 14,500 USD, with a possible retest of the 14,000 USD threshold.

Either way, volatility is expected to be enormous after the decision, so investors should take a very cautious approach during and after this event.

nasdaq daily chart Nasdaq daily chart, Source: Author´s analysis, tradingview.com

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