Technical Analysis

Laps being completed – and then some – in the major pairs

I call a “lap”, a price move that moves quickly in one direction and retraces the full move almost as fast. THat is what has happened in all of the major currency pairs.

You often have a lap happen because the market misinterprets a news item, or there is a player or players who single handedly reverse a market against the conventional wisdom and a squeeze ensues in the other direction. In basketball jargon, it is “fast break the other way” (in other words, the action goes quickly from going fast one way down the court, to a fast-break going the other way because the other team steals the ball).

In this case, the FOMC statement changed. The Fed said:

The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

The market interpreted it as a clue that the Fed would indeed start to slow the pace of hikes (they may still do it) and the terminal rate was more around the corner than what the market expected.

In reality, instead of the Fed chair acknowledging that policy “might” be changed, but said things like:

  • Very (and he emphasized the word “very”) premature to think about pausing
  • The ultimate top rate is very uncertain but CPI and labor data suggest may it will be higher than previously thought
  • We think there is some ground cover, and cover it we will

So it was fast break the other way for currency pairs and stocks..

Below are the 5 minute charts of the major currency pairs. PS the prices are extending the moves “the other way”.







Major US indices also completed an up and down lap.

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