Reaction to the Fed Dot Plot
Analysts were split on whether the Fed would maintain its 2018 Dot or increase it to 2.375 implying that the Fed would raise interest rates 4 times this year. Whilst only around 35% of analysts were looking for an increase, this provided a clear binary trade: Keep the dot at 2.125 is dovish, increase to 2.375 is hawkish.
The second part of the trade plan is whether the Fed raises longer term Dots, increasing the likelihood of rate hikes further down the line. The result was Unchanged on the 2018 dot and increases in the other – because most analysts expected the unchanged, the dovish move was more likely to be faded particularly with longer term Dot being increased. From a trading perspective the first opportunity is a buy in bonds and equities, however quick assimilation of the rest of the information along with a change on order flow allows such trades to be cut and reversed. The fact that many positions will have been entered on the initial jump up means that price action is likely to accelerate as markets fall due to these longs exiting, providing opportunity to add to short positions.
In this Axia Futures Daily debrief the execution of the cut and reverse trade is examined in Bund, S&P 500 and 5 Year T-Note futures, looking at managing positioning and adding as the order flow dynamics pick up.
How to take on a variety of Central Bank and event trades are analysed in detail in the Macro Event week of the Axia Futures 8-week Intensive Trader Training.