Fed Is Expected to Raise Rates This Week - 9.14

EUR/USD is in a tight range with this week's Fed decision set to be the trigger for the next real move. The ECB already delivered a hawkish hike, with markets pricing roughly a 75% chance of another one at its next meeting. Goldman Sachs sits at the bullish extreme with a 1.25 year-end target on structural dollar weakness, while J.P. Morgan and ING are more conservative around 1.22.

EUR/GBP is near 0.8600 as markets have fully priced the ECB hike, while the BoE is widely expected to hold Thursday. Watch the vote split: the last decision saw six members vote to hold and three vote to hike.

AUD/USD is caught in the middle: the RBA is expected to stay on hold, which leaves the Aussie more exposed if the Fed hikes and turns hawkish.

USD/JPY - Board member Hajime Takata has said the BOJ should hike lightly, and there's real chatter about intervention risk around the thin holiday trading right after the decision. With the Fed and BoJ moving in the same 48 hours, expect outsized volatility here specifically Wednesday through Friday.

S&P 500 / Nasdaq / Dow — All three indexes fell last week as oil prices and rate fears spooked investors more than any company earnings did. A Fed hike is basically expected now, so the real question is tone: if the Fed sounds like more hikes are coming, Nasdaq will likely take the hardest hit and the dollar gets stronger. If the Fed hints this is a one-time move, the S&P 500 could bounce back toward 7,700-7,800.

Nikkei - Japan's market has two things to worry about this week - the Fed and BoJ. Charts are showing weakness heading into the decision. If the BoJ hikes rates, the yen gets stronger, which hurts Japanese exporters: products get pricier overseas.

FTSE 100:  UK borrowing costs just hit an 18-year high, and that's weighing on British stocks. Higher oil prices are actually helping a bit, since the FTSE has big oil companies - Shell and BP. Expect a choppy week leaning slightly negative and if the Bank of England surprises with anything hawkish Thursday, stocks that are sensitive to interest rates could get hit hard.

ASX 200 - Australia's market is in better shape than most right now, helped by strong energy stocks. A Fed hike is already expected and priced in, so the ASX's mood this week really comes down to one thing: does oil keep rising or start to cool off.

Brent / WTI: Brent traded near $108 and WTI near $103 Monday after Oman postponed planned Gulf-Iran talks on Strait of Hormuz shipping, while Saudi Arabia's damaged East-West pipeline stayed shut. Without a breakthrough in Oman talks, oil could extend toward the $119.48 high from March. Goldman Sachs raised its December forecasts to $85 (Brent) and $80 (WTI), warning of a tail scenario above $120 in 2027 if Gulf output stays well below pre-war levels.

Bitcoin is holding above $77,000, even though the odds of a Fed rate hike this week have jumped to about 87% . If Fed hikes but keeps a calm tone, Bitcoin could settle around $78,000-$80,000. If Fed hikes and sounds more aggressive about future hikes, Bitcoin could drop toward $75,000. And if the Fed surprises everyone by not hiking at all, Bitcoin could jump back up to $80,000–$82,000.

Ethereum just hit an 8 month high above $2,600, helped by over $216 million flowing into Ethereum ETFs, even with Goldman Sachs predicting a hike this week. If Ethereum can close out the week above $2,550, that could open the door for a move toward $3,000.