Has the market become overly positive and reliant on a Fed PivotThe Fed hasn't changed their narrative on getting inflation back to 2% at all costs, because inflation has been dropping the market is trying to front run the fed in anticipating a pivot on interest rates. However as J Powell has said countless times over and over again, the Fed's priority is to restore price stability at all costs. This means they are willing to crash the economy (we're just starting to see the signs of an economic downturn now) in the pursuit of getting inflation under control. Inflation is going to get sticky now and you'd be naive to think that it's going to keep falling as it has done the last few months. Whilst the Fed is slowing down the rate hikes, they're still hiking and likely will increase the terminal rate until we have positive real rates which is something we haven't had for quite some time. Oil and Gas prices are pretty much back to where they were pre Ukraine war, this is unlikely to last as we have entered a commodities super cycle and most countries have been stockpiling reserves, yet the IEA pointed out that OPEC+ will struggle to meet the demand in the coming year as a result we'll once again see oil and gas prices starting to climb again especially now China is coming back online (China reopening will be inflationary alone).
Fundamentals aside looking at the charts, the dollar is oversold on most indicators and we've retraced into the 50% fib retracement area. We are prime for a bounce and I think we have just bottomed this week, with GDP, PCE and the Fed interest rate and guidance all to come in the next two weeks we could see a very aggressive dollar rally should they continue to stick to their narrative of keeping rates high for an exteneded period of time to combat inflation even though they are forcing the economy into a recession.
