The FOMC Statement and projections from yesterday sent the dollar lower and the stock market at the highs. The Fed did not step away from its accommodative measures, despite pressure from the positive economic data and increased pace in the vaccination rate.
Because it signaled temporary inflation and a stronger GDP than initially thought, the Fed’s message triggered a risk-on move across financial markets. Right after the FOMC Statement, the Dow jumped closer to it’s all-time high, the dollar declined across the board, and the trend did not change for the entire length of the press conference that followed.
In Europe, the main indices traded in a tight range, waiting for clues from the United States. The European Commission gave yesterday more details about the vaccination plan ahead, while most of the European countries announced the start of a third wave of the pandemic.
Commodities traded mixed yesterday, with precious metals having a great day after the Fed’s message. Gold and silver gained around 1%, respectively 2%, while the crude oil price declined a little more than half a percentage point. Copper had another great day, up almost 2% as the commodity buying frenzy continues.
The day ahead is all about how the markets digest the message from the Fed and what the Bank of England’s decision will be. In the case of the Fed’s message, it would be interesting to see if the European indices follow the U.S. ones higher, as the improved economic outlook across the ocean should have positive economic effects in Europe as well. However, the other way around is valid too – a deeper recession in Europe may drag the U.S. performance.
As for the Bank of England, the most interesting thing to watch is the bank’s reaction to the recent drop in trade numbers with the European Union. If the bank sees it as continuing in the future, it may act preemptively.
Markets to Watch
S&P500, EURGBP, EURUSD – markets in focus today.
The U.S. stock market indices celebrated the Fed’s message. At least that was the reaction during and after yesterday’s press conference. In the meantime, futures declined a bit due to a rise in long-term yields. The S&P 500 index almost reached 4,000 points yesterday, and the move higher should be taken with a grain of salt due to a huge divergence with the RSI. A break of the previous higher low should trigger more weakness.
Ahead of the Bank of England’s message due later today, the EURGBP cross pair forms a descending triangle against previous resistance. Such a pattern puts pressure on the horizontal support, and, providing the series of lower highs remains intact, the chances are that it will break through. The measured move suggests a decline to 0.84 or more on a clear break.
Once the EURUSD cleared the 1.20 area, it had a difficult time moving above again. The pair rallied on the Fed’s news, but at today’s opening, the dollar is bid while the euro suffers. We should not rule out a break below the recent lows seen at 1.1840 area, should the pair clear 1.19.
Winners and Losers
AUD remains the winner as it is higher across the board after the Fed’s decision. On the other side, the JPY remains well offered ahead of the Bank of Japan’s decision.