*Russia moves to cement grip on occupied Ukraine, ups the stakes

*ECB’s Lagarde raises prospects of rate hikes beyond neutral level

*US dollar ascendant as investors gear up for the FOMC meeting

*Gold lingers near lows ahead of another jumbo-sized rate hike

USD was stronger against most of its peers except the CHF. The DXY pushed up towards recent 20-year highs. EUR sold off after moving above parity. GBP traded to an intraday low at 1.1357 before closing at 1.1381. The yen extended weakness with USD/JPY heading towards 144. AUD broke the cycle low at 0.6681 earlier today but currently trades just above this support. USD/CAD made new highs at 1.3375 and NZD new lows at 0.5885.

US equities finished sharply lower as investors braced for another jumbo-sized Fed rate hike. The broad-based S&P500 ended the day down 1.1%. The tech-heavy Nasdaq fell 0.85% and the Dow dropped 1.03%. The Vix, Wall Street’s fear gauge, jumped above 27 from 25.76. Asian stocks are trading lower mirroring global risk aversion and heightened geopolitical concerns. Futures in Europe are pointing to a marginally lower open. US futures are mixed.

Day Ahead – Fed decision day (plus other major central banks!)

The next 48 hours could be fairly tumultuous in markets with numerous major central bank meetings. Traders are focused on tonight’s FOMC meeting with expectations for another 75bp rate hike. The chances of a bigger 100bp move are now at 18% so we think we can disregard this event. There has been no signals from the Fed (to the WSJ or similar), so this would be too much of a shock and awe move.

We get the latest economic projections and dot plots showing Fed officials’ views on rates out to 2025. The end or “terminal” rate for the Fed funds rate is now key. The projections and dots will be instrumental in steering the Fed’s language and price action. Markets have been bidding up rate hike expectations to 4.5% by springtime next year. Is the bar too high for a hawkish surprise? 5%? The path of least resistance in the short term would seem to be a short squeeze in stocks and the dollar. But USD will likely stay strong as it remains difficult for other central banks to match the Fed’s tightening efforts.

Chart of the Day – S&P500 hovers below near-term trendline

Studies show that US stocks have risen on days when a Fed hike was announced. The S&P500 index climbed roughly 1.4% on all days. There were gains of more than 2% on three of the four. Further out, the benchmark index gained on average more than 1% on Fed days over the last 10 meetings. But note that these gains are mostly given up a day later.

The S&P500 found support at 3,900 and the 61.8% Fib level of the June to August move. But the shock red hot US CPI data did for that rally. Prices moved sharply below the 50 and 100-day SMAs around 4,000. Short-term trendline support has also been pierced. This acts as resistance just above the 3,900 area. Support below is a minor Fib level at 3,783 and then 3,721.