The Dow Jones declined yesterday as investors chose to be cautious ahead of the Fed meeting. In a curious move, the Japanese yen declined as well, failing to be the safe-haven asset it used to.
The entire financial community is waiting for the Fed’s message regarding the future monetary policy in the world. According to some views, this week’s meeting might be Fed Powell’s most important meeting since becoming the Chairman.
Make no mistake, the Fed is facing a challenging decision. On the one hand, inflation is running hot, but the Fed views it as transitory. On the other hand, the labour market is just not where the Fed would like it to be. Yet, assets are at record highs – how to justify keeping the monetary policy accommodative? Or will the Fed finally signal the end of the stimulus is near? Regardless of what it does, the financial market’s volatility is set to rise.
In the meantime, stocks reached a new all-time high on Monday. The S&P500 and the German Dax index reached record levels, although the Dow Jones corrected a bit.
Commodities remain bid as well, with the crude oil price holding above $70. Silver, in particular, looks strong. The US dollar gave back some of its last Friday gains, and it still looks weak on every bounce.
The economic calendar is full of important economic events today. From Australia to the United Kingdom, and from the Euro area to the United States, the data today may move financial markets.
The Germany Final CPI is expected at 0.5% today. Because Germany is the largest Euro area economy, higher inflation than the forecast may trigger a sharp reaction in the euro.
UK traders are on high alert as the unemployment rate is released today, expected at 4.7%. Also, the Bank of England’s Governor holds a speech, so we may see some fireworks on the Great Britain pound pairs.
On the other side of the Atlantic, the Retail Sales and the PPI monthly releases are the highlights of the North American session. Because we are just one day ahead of the Fed meeting, any significant movement in financial markets should be taken with a grain of salt. Tomorrow’s Fed decision might be a game-changer.
Markets to Watch
Dow Jones, EUR/JPY, USD/CHF – markets in focus today.
The Dow Jones index did nothing in the past month, evolving in a range defined by 35,200 to the upside and 33,200 to the downside. A breakout of either level should trigger an accelerated move in the same direction.
The EUR/JPY bounced from the 132.60 area as it provided strong support at the first attempt to break lower. Providing the market does not make a new high, we may see a head and shoulders formation here.
Demand for the Swiss franc remains elevated as the USD/CHF pair is sold on every bounce. If the market does not make a new lower low, we may see a double bottom formation that hints at a reversal.
Winners and Losers
Weak dollar, strong equities – the theme ahead of the Fed meeting.