What Will the Fed do?

In the face of weakening growth expectations, will the Fed persist with its tightening plan this week?

Equity markets have been under immense pressure since mid-September as investors are increasingly frightened by the rise in borrowing cost. Consumer demand is weakening across the globe. In the UK, the retail market is in a bloodbath, with former internet darling ASOS suffering a 40% dive in share prices this morning.

Many are expecting the Fed to dial back its hawkish policy to accommodate the shifting economic trend. If it oblige, there is a fighting chance that the Nasdaq Composite Index may reaffirm support at 6,800 again (see below).

If the Fed doesn’t, I suspect these technical support levels will be smashed through easily to the downside. The pattern of falling highs is a clear signal that those ‘stale bulls’ trying to get out. A 400-point decline is to be expected if the 6,800-6,900 support bands fails.

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