The FOMC statement and the Fed staff projections are due in the second half of the North American session. The US dollar is in focus today, and financial market participants prepare for increased volatility.
No more bets, as today the Federal Reserve of the United States delivers its monetary policy statement and economic forecast. According to many market participants, it is the event of the second quarter, probably the one event responsible for the tight ranges seen in the markets in the last couple of months.
The S&P 500 reached a new high yesterday – the second one this week after Monday. Whenever the volatility is subdued, the stock market benefits from the slow price action and simply creeps higher and higher.
But the volatility is about to increase today, and financial markets do put pressure on the Fed. The US dollar is at a 2021 low, the stock market indices at their 2021 highs, and the Fed is pressured to do nothing in order to maintain the status quo. The fear of a taper tantrum is very much alive as the Fed surely remembers what happened the last time when tapering was announced in the aftermath of the 2008 – 2009 Great Financial Crisis.
The WTI crude oil price reached above $72 for the first time since October 2018. Considering that only thirteen months ago it settled close to -$40, the trip higher is nothing short of spectacular, perhaps the best trade ever for those who were willing to bet on the price of oil’s recovery during the pandemic.
Precious metals simply range ahead of the Fed because today it is all about the US dollar. What happens next with the greenback will have a tremendous impact on all financial assets for the rest of the summer and perhaps for the rest of the trading year too.
Regardless of the name of the economic events listed below, the only thing that matters today is the Fed meeting and the subsequent press conference. Therefore, one can simply ignore everything else for the intraday price action.
Markets to Watch
S&P500, EUR/USD, AUD/USD – markets in focus today.
The S&P500 index enters the Fed’s decision close to its all-time high. While it holds above the rising trendline, it looks bullish and only a move below 4,220 could signal more weakness.
EUR/USD was bought on every attempt to move lower in the past month. The retracement almost broke the series of lower highs, but failed in the end. The bias here is that 1.20 attracts, as the EUR/USD is unable to move in the absence of an important economic event – today’s event might finally move the pair.
One of the tightest ranges in the FX world formed on the AUD/USD pair in the last month. Fed’s meeting today might trigger a move outside the range, with the bias being to the downside as suggested by a possible head and shoulders pattern.
Winners and Losers
Stock market indices in the US and Europe remain close to their highs, the US dollar trades with a mixed tone.