Financial markets are finding conviction and the Fed should be pleased this time, unlike the response to the last Fed rate rise, when markets rallied, and financial conditions loosened for weeks. That shift to a risk-on sentiment was led by a selloff in the US dollar, and progressed to a rally in equities, commodities, and crypto assets. Countless Federal Reserve members subsequently re-iterated the Fed's intentions to fight inflation at all costs, but market participants ignored the rhetoric. It wasn't until Fed Chair Jerome Powell gave a less than 9-minute speech at the annual Jackson Hole economic symposium that markets seemingly received the message.

The current shift to a risk-off sentiment is also being led by (a rally in) the dollar, while all other asset classes have been selling off in response. Whatever the narrative that emerges to explain why individual markets are selling off, the overall trend that is developing in risk assets in the short-term is lower.

I say trend because when I look at the price action in the dollar of the past day (top left), past week (top right), past month (bottom left), and past quarter (bottom right), the charts are all pointing higher. As a body in motion tends to stay in motion, I expect the dollar to keep cruising higher in the short-term until it runs into some immoveable object which changes the direction of the dollar and market sentiment with it.

Fed resolve to fight inflation will keep pushing stocks, bonds, and gold lower, while China's Zero COVID policy continues to be a headwind for oil and other commodities. Falling prices across risk assets will influence crypto lower as well. There's considerable momentum behind the current dollar rally that would need to be overcome before markets can experience another bout of risk-on sentiment. If correlations hold in the short-term, we can expect more selling to wrap up this trading week, and at least partway through next week.