The holy trinity – the three markets to drive cross-asset volatility
Pricing for the December FOMC meeting
So part of the reaction will be seen in the pricing for the Dec FOMC meeting which currently sits at 4.41% – traders can see this on TradingView by typing ‘100-ZQF2023’ into the navigator. A dovish reaction would be to see this headed below 4.4%, where we would expect the USD to sell off and gold and equities to rally. A push towards 4.50% would see USDJPY push towards 150 and EURUSD through 0.9800.
Terminal fed funds rates pricing
We also look at the terminal rates pricing – this is the peak of market expectations for where the Fed can take rates, which currently sit in the May to June 2023 period at 5% – we can type in ‘100-ZQK2023’ into the navigator. A firm break above 5% would send risk lower.
US 2-year Treasury
I also look at US real rates and 2yr Treasuries (US02Y) closely as a driver for risk assets – If yields rise then we should see the NAS100 and gold fall and the USD spike, especially if we take out the 21 Oct high of 4.63% – conversely if yields fall/price rise then the USD will likely fall.
