Despite the Fed’s signal regarding the tapering of its asset purchases, the stock market indices remain close to their record highs, with the S&P 500 outlook positive while close to 4,400 points.
The S&P 500 index remains close to its record highs and threatens to move even higher. It currently has a possible pennant formation, and the measured move points to another leg higher.
Yesterday, the Federal Reserve of the United States signalled that it is coming closer to tapering the asset purchases. While a decision has not been made yet, the upcoming meetings are decisive.
Normally, yesterday’s message should have been bullish for the dollar and bearish for the stock market. But, the opposite happened, as the Fed made sure that it kept a vague tone.
For instance, it stated that the Fed continued to assess progress toward taper goals but will consider the pace and composition of taper when it begins. In other words, “we’re not there yet,” and the market took it at face value. As such, the main US indices remain close to their highs and bid.
The currency market reacted with a strong dollar initially, only for the move to be quickly reversed. Ahead of London’s opening, the US dollar is offered, as reflected by the EUR/USD pair that trades above 1.1850.
European equity markets are literally unchanged, as they were in the past weeks. Nothing seems to move the markets during the summer, and the summer trading conditions will likely continue in August.
On the commodities front, silver recovered some of the lost ground and now trades above $25.20, while gold sits at $1,815. The crude oil price remains well bid above $72.
Both the London and the North American sessions look interesting today. In Europe, inflation and unemployment in Germany and Spain may move the common currency.
In the United States, the focus shifts from the Fed’s decision to the advance GDP release. Out of the three versions of the GDP announced in the United States, the advance GDP is the most important one because it is released the earliest. The market expects 8.5% economic growth in the second quarter, following 6.2% in the previous one.
Markets to Watch
S&P 500, EUR/USD, and EUR/JPY are markets in focus today.
S&P 500 Outlook
A possible pennant formation appears on the S&P 500 index 4h chart. This is a continuation pattern and the focus shifts to the market’s ability to make a new high. Based on such a breakout, the measured move indicates 4,600 as a target.
The EUR/USD pair kept finding buyers below 1.18, and now the huge falling wedge pattern broke higher. The next target is the pivotal 1.20 area as the market often retraces half the distance travelled during a wedge formation.
A price action similar to the EUR/USD is seen in the EUR/JPY cross. Here, all the dips below 130 were bought consistently, and the attention moves to 131, the previous lower high. A move above this level indicates further strength.
Winners and Losers
US stocks remain well bid, while the US dollar is offered following the Fed’s statement.