Strategy Video: What is the Market Pricing in for Wednesday's Fed Decision?
• The key tenet of fundamental analysis is to determine what is most important to the market
• The next step is determining what is 'priced in' for that theme and spot event risk that can alter it
• We use the FOMC decision to discuss the process of assessing what's priced in and how it can move markets
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The FOMC rate decision scheduled next Wednesday has the potential to be one of the most market-moving events we have seen released in weeks. That said, how do we determine what can move the markets? Furthermore, what determines which outcomes will generate heavy market response while others are roundly ignored? The first tenet of fundamental analysis is to establish what is most important to the market (practically, the greatest number of market participants). From there, determining trend, momentum and reaction to future catalysts is a function of establishing what is 'priced in'. If the masses have fully positioned for an expected fundamental development, we would expect no further change in its price (trend) nor reaction (volatility) to event risk related to it. However, rarely are the markets so on-the-mark. We discuss how establishing what the markets have priced in can help our trading - using the upcoming FOMC decision - in this weekend Strategy Video.
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