02 Nov 2022

FOMC Primer

Wednesday’s FOMC press conference will likely lead to volatility in a highly correlated environment between crypto and U.S. equities.
Source: Tradingview
Currently, the market is pricing in an 86% probability of a 75bps hike versus an 14% probability of a 50bps hike. The odds for a 50bps hike have increased materially in the last week as chatter about a FED pivot has strengthened. A 75bps hike is still the most likely outcome, but due to rising expectations of a 50bps hike, a 75bps hike is poised to reflect negatively on the market. Since the last FOMC meeting, crypto has outperformed broad financial markets. ETH and BTC saw massive short-lived selling pressure immediately after the FOMC but recovered comfortably, trading in the green since the last FOMC. Gold and equity indexes, on the other hand, are in the red. This is a positive sign of relative strength from crypto, and we note slight signs of declining correlations. FOMCs tend to lead to elevated correlations across asset classes, which will likely repeat this Wednesday.
Source: Tradingview
Expect volatility
During FOMC meetings, volatility tends to surge. The September 21 FOMC was the most volatile FOMC to date, as BTC saw average minutely price fluctuations of 0.81% during the press conference. FOMC days have tended to become more volatile recently. From April 2021 to January 2022, before FED’s hiking cycle, FOMC volatility was softer, reaching 0.18% during the press conference. The FOMC meetings from March to July saw higher volatility, reaching 0.33% on average per minute. The September FOMC was uniquely volatile, caused by the massively negative initial response followed by a strong recovery.
Source: FTX API (Minutely trade data during FOMC meetings) *Dates included: 2021: Apr 28, Jun 16, Jul 28, Sep 22, Nov 3, Dec 12. 2022: Jan 26, Mar 16, May 4, Jun 15, Jul 27, Sep 21.
While FOMCs are notoriously volatile, they are also notoriously difficult to trade. Intraday volatility is a characteristic feature, but even the September 21 reaction retraced, and BTC experienced daily losses of -3%, but intraday high-low swings of 9%. This article is a part of the deep-dive section of our new market report: Ahead of the curve
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