Market Overview: Calm Before FED Day – What We Expect and How We Will Trade the Different Scenarios From the Rate Decision

At the start of the U.S. afternoon session, trading on the stock markets remains choppy as investors await tomorrow’s Federal Reserve interest rate decision.

The expected Fed rate cut has already been priced into the major stock indexes. At the same time, traders are assessing the future of U.S. AI chip exports to China. U.S. President Donald Trump said he will allow Nvidia to ship its H200 processors — the company’s second most powerful AI chips — to China in exchange for a 25% tariff on those exports.

Still, the positive news did not boost overall bullish sentiment toward the market, nor toward Nvidia, AMD, or Intel (this approach is expected to be extended to other chipmakers as well). Investors’ appetite for corporate spending on AI infrastructure will likely face further pressure with the upcoming earnings reports from Oracle and Broadcom later this week.

The Federal Reserve’s two-day monetary policy meeting began today, during which policymakers will decide whether to cut borrowing costs even though inflation remains above the central bank’s 2% target.

Fed members have sent mixed signals about the outlook. Some have warned that price pressures could easily reaccelerate, while others are more concerned about labor market conditions.

Markets are still pricing in nearly a 90% probability of a 25-basis-point rate cut tomorrow and are expecting a further 50 basis points of easing next year.

Despite the broadly optimistic market sentiment around the upcoming rate cuts, one fact should not be overlooked: the Fed is just as in the dark as everyone else due to missing and delayed economic data.

U.S. stocks may become more volatile after tomorrow’s meeting than after other recent decisions, as Bloomberg options data indicate an implied move of 0.7% in either direction.

It is not an exaggeration to say that the rate cut itself is actually the least important part of this meeting. The market is far more interested in signals from the Fed about whether it will continue cutting rates, rather than hints of a pause in the rate-cutting cycle.

They will cut rates by 25 basis points anyway, but there could be surprises in their language and in Chairman Powell’s statement, which I expect to be more hawkish, indicating a possible pause in the first quarter of 2026. Even though he will likely try to maintain a neutral tone – emphasizing a data-dependent approach and caution since inflation remains above target and could worsen, while the labor market is not in bad shape – the market may interpret a measured tone as a hawkish signal.

This will have a negative impact on the stock market and equity indices (similar to the last press conference, after which markets declined). At the same time, a hawkish Fed will boost dollar purchases and its appreciation. For risk assets, the tougher tone will lead to sell-offs in crypto markets as well. Precious metals are seeing positive cash flows and are rising in pre-Fed trading both as a hedge instrument like gold and as a speculative instrument with continued strong FOMO trading like silver, but in this scenario, an initial sell-off in this asset class would likely follow.

If the Federal Reserve is too hawkish, we expect the White House to announce Powell’s replacement soon. This would be a market-clearing event.

The nominee for Fed Chair, Kevin Hassett, made a statement and said:

• There is plenty of room for the Fed to cut rates.
• He says there is potential for a cut larger than 25 basis points.
• President Trump will make the choice, but he may change his decision.
• He says it is important for the Fed Chair to consider the data.
• He notes that Treasury Secretary Besset is leading Fed management, but does not want the role.
• If he were Fed Chair, he would make decisions based on his own judgment. Trump says he trusts him.
• Labor growth is slightly slower than before.

What is particularly interesting right now is the intense focus on economic data. Critics like Miran and Besset argue that the current Fed is not forward-looking enough, saying policymakers should anticipate economic changes rather than react to them. In contrast, Kevin Hassett’s approach now aligns more closely with the existing Fed framework – including the often-criticized Chair Jerome Powell, who has repeatedly emphasized that the Fed remains data-dependent when setting policy.

Betting markets still favor Hassett. On Polymarket, traders currently assign Hassett a 76% probability of becoming the next Fed leader – down from about 88% yesterday, but still firmly in the lead. Kevin Warsh, by comparison, is around 12%, suggesting that market confidence remains strongly aligned with Hassett despite recent volatility.

After the Fed’s rate decision, the market could change direction, starting to trade on expectations for the new Chair in the person of Hassett and his closer alignment with Trump, which implies a higher likelihood of stronger political influence. Trading on expectations for more aggressive monetary easing and further rate cuts could fuel the start of a Christmas rally, supporting a strong year-end for stocks, indices, crypto, and precious metals – and conversely, putting pressure on the US dollar.

GOLD remains locked in a tight range; I don’t expect a breakout before Powell’s press conference. A more dovish Fed (or a maximally neutral, balanced stance without hawkish tones in the speech) would set the stage for a resumption of the uptrend, pushing prices toward the upper trendline of the channel, where the target for completing the triangle formation lies around 4680–4700.

A hawkish Powell would drive prices toward a downward breakout and a retest of the key psychological level at $4,000 per ounce.

Silver – with a new ATH, is testing an extremely strong resistance zone, where it could hold until the Fed meeting, unless Asian markets engage in take-profit strategies to reduce exposure ahead of the event.

A dovish Fed could trigger a bullish breakout, accelerating the move toward levels around 63.30.

A hawkish Fed – rapid position closures could first push prices to retest the breakout at 58.90–59.10, and if a potential rebound fails followed by a new breakout, prices could drop back toward 56.00–56.20, aligning with a healthy 38.2% Fibonacci retracement.

EURUSD ahead of the decision is trading in the upper part of a narrowing range, with positioning suggesting a move toward the lower part.

Dovish – attempt to break the diagonal for an upward move back toward levels above 1.18.

Hawkish – first point of interest is the median of the range at 1.1590; breaking the support could continue the short toward 1.1510–1.1520.

SP500 – price action shows defensive positioning with a bearish tilt in case of a potential hawkish surprise, following an unsuccessful attempt to break the horizontal resistance, where a reversal pin bar has formed.

Hawkish – a downward impulse would confirm a break of the inner trendline, pushing prices toward the 6750 area.

Dovish – a classic scenario for the start of the Christmas rally, aiming for the psychological round level of 7000, a key milestone for the year-end ATH.

Bitcoin – Despite the broader crypto market rally, Bitcoin is currently forming a classic flag formation, signaling a continuation of the downtrend if the pattern is triggered, especially after entering a congested zone with significant sell orders.

Hawkish – an acceleration of risk-asset sell-offs would trigger the pattern, leading to downward movement for a retest and break of the key $80K level, potentially opening a new short toward $77K in the coming days.

Dovish – a faster return of capital to risk assets could break the downtrend in Bitcoin, accelerating a rebound toward levels above $100K, with strong resistance at the 200MA around $109K.