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Investing.com -- Citi expects the Federal Reserve to keep interest rates unchanged at its upcoming meeting, with the main focus for markets being the Summary of Economic Projections (SEP) and Chair Powell’s press conference, according to a research note released by the bank.
The investment bank sees "asymmetric bullish risk" for the U.S. dollar during the meeting, suggesting that any dollar strength should be viewed as an opportunity to add to short positions. Citi economists anticipate downward revisions to 2025 GDP forecasts and upward adjustments to both unemployment and inflation projections.
Citi notes the threshold for a hawkish surprise is relatively low, as only two Fed participants would need to shift their outlook from two rate cuts to one cut for the median 2025 projection to change. Markets are currently pricing in approximately 46 basis points of cuts for 2025, while both institutional and leveraged investors have built significant short dollar positions.
For the EUR/USD currency pair, Citi views any pullback toward the 1.14 level as an attractive opportunity to establish long euro positions. The bank does not expect the pair to fall below 1.13, with the 55-day moving average currently at 1.1307 serving as a key support level.
Despite potential short-term dollar strength, Citi maintains its longer-term bearish dollar outlook through the third quarter, citing downside risks to the U.S. labor market and ongoing term premium concerns.
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