Managing Editor’s Note: The Anthropic IPO is coming – estimates put it at $2 to $4 trillion. It could be the biggest IPO of all time. Every broker in America will be pushing it. But our colleague Jeff Brown says: Whatever you do, do NOT buy the Anthropic IPO.
If you want to know why… and what he recommends instead… be sure to tune in on Wednesday, September 16, at 8 p.m. ET, to The Super IPO Summit.
Investors are on edge, waiting for the Federal Reserve’s next move.
Not too long ago, the Fed was expected to keep interest rates steady following its meeting this week. But as of Friday, market-implied odds point to an 87% chance of a rate hike.
That follows a strong August payrolls report that showed 162,000 jobs added during the month, which was triple what economists were expecting.
Then came producer and consumer inflation reports. The Consumer Price Index increased by 3.4% in August compared to last year. The Producer Price Index surged by 5.4%.
With inflation continuing to run hot and the labor market humming along, there is fear that a Fed tightening cycle could weigh on the stock market, and investors are bracing for the reaction.
Yet a much bigger response could be lurking in the largest market in the world…
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The currency market has traded $9.6 trillion a day on average, more than any other market.
As you can imagine, currency moves can have a spillover impact on stocks, bonds, precious metals, and cryptocurrencies.
The U.S. Dollar Index (DXY) is a popular way to measure movements in the dollar against a basket of other major currencies. That includes the euro, British pound, and Japanese yen.
Here’s a chart of DXY going back to the start of 2025:
DXY made a peak near the 110 level in January 2025 and began a steady decline. The pullback handed the dollar one of its worst starts in over 50 years.
After finding a low in July last year, the dollar has been grinding sideways in a range. But the Fed could play a major role in pushing the dollar out of that range.
With inflation pressures persisting and fears over job weakness not materializing, the Fed could be facing a hawkish pivot toward tighter monetary policy and rate hikes.
The outlook for monetary policy is developing alongside a bullish chart setup in DXY, which could spark a dollar rebound.
Here’s the chart setup you need to watch…
While DXY has been range-bound, the Fed meeting this week could play a major role in sparking a move.
Interest rate shifts around the world can impact currency pairs. Interest rates are a fundamental part of currency trading, acting like a relative valuation tool.
Capital flows to where it can earn the best return, so countries with relatively high interest rates tend to attract capital (and see their currency appreciate), while countries with low rates will often see their currency fall in value.
That’s why the Fed could be a big catalyst for currency markets when it meets. Expectations are growing that the Fed will need to raise interest rates to help keep inflation under control.
At the same time, a bullish reversal pattern is forming on DXY. Take another look at the short-term DXY chart:
A recent pullback in DXY saw the dollar get extended far below its 50-day moving average (blue line). At the same time, a positive momentum divergence is forming on the Relative Strength Index (RSI).
While DXY is testing the 98.60 level for the second time since the end of August, the RSI is making a higher low, which shows downside momentum is fading (dashed lines).
Dollar movements can have a ripple effect throughout the stock market. So as the DXY chart setup collides with a highly anticipated Fed meeting, stay on the lookout for a reversal higher.
One way or another, any big or unexpected moves this week could create a tailspin of volatility with plenty of trading opportunities.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
