Nasdaq 100, S&P 500, FOMC Interest Rate Decision, Summary of Economic Projections – Talking Points:
- A broad risk-on tilt was seen during APAC trade as the haven-associated Japanese Yen and US Dollar lost ground against their major counterparts.
- Upcoming FOMC interest rate decision could dictate the near-term outlook for US benchmark equity indices.
- Downside break of Rising Wedge pattern hints at further losses for the S&P 500 index.
- April uptrend continues to direct the tech-heavy Nasdaq 100 higher.
Asia-Pacific Recap
A broad risk-on tilt was seen throughout the Asia-Pacific trading session, as the haven-associated Japanese Yen and US Dollar lost ground against their major counterparts.
The trade-sensitive Australian Dollar followed commodity prices higher, as gold climbed above $1940/oz and crude oil clawed back lost ground.
Australia’s benchmark ASX 200 index rose alongside S&P 500 futures as comments from Pfizer CEO Albert Boula, suggesting that a Covid-19 vaccine could be available by year end, spurred investors’ appetite for risk.
Looking ahead, Euro-zone industrial production figures for July headline a rather light economic docket, as attention turns to the upcoming Federal Reserve interest rate decision on September 16.
Market reaction chart created using TradingView
FOMC Meeting to Define SPX, NDQ Outlook
The upcoming Federal Open Market Committee (FOMC) meeting could define the near-term outlook for US benchmark equity indices, as the central bank is expected to provide its updated Summary of Economic Projections (SEP) and show how it will implement its recent adoption of average inflation targeting (AIT).
Federal Reserve Chair Jerome Powell unveiled the central bank’s updated monetary policy strategy that “will seek to achieve inflation that averages 2 percent over time” at the annual Jackson Hole economic symposium on August 27.
This fundamental change to the Fed’s monetary policy framework is likely to be reflected in the interest rate dotplot supplied in the updated SEP release, with a notable lowering of rate expectations in the “longer run” probably buoying risk-associated assets and hampering the performance of the Greenback. The interest rate dotplot for June showed that most US policymakers believe that the Fed Funds rate will normalize at 2.5% post-2022.
Source – Federal Reserve
Having said that, the provision of additional stimulus, outside of forward guidance, seems relatively unlikely despite the lack of progress in Congressional stimulus talks and a Covid-19 death toll in excess of 200,000.
Nevertheless, further clarification of the Federal Reserve’s updated framework may sooth investors’ concerns in the interim and could result in the S&P 500 and Nasdaq 100 climbing back to test their respective yearly highs set earlier this month.
S&P 500 e-Mini Futures Daily Chart – Rising Volume on Sell-Off Ominous
From a technical perspective, the S&P 500 index is at risk of extending its fall from the record high (3587) set on September 2, as price collapses through the 21-day moving average (3425) and the RSI slides below its neutral midpoint into bearish territory.
Above average volume throughout the index’s 6-day slide lower hints at building selling pressure, which could ultimately lead to a more sustained correction, if price is unable to stay constructively perched above confluent support at the 38.2% Fibonacci (3306) and trend-defining 50-day moving average.
A daily close below the psychologically pivotal 3300 level would probably generate a push back towards the sentiment-defining 200-DMA (3094.50).
That being said, the path of least resistance looks to be higher as the MACD begins to swerve away from its neutral midpoint and the RSI bounces away from bearish territory below 40.
Therefore, a daily close back above the 50% Fibonacci (3424.25) may invalidate the downside break of the bearish Rising Wedge pattern carved out since early April and clear a path for price to retest the yearly high (3587).
S&P 500 e-Mini Futures daily chart created using TradingView
Nasdaq 100 Index Daily Chart – April Uptrend Remains Intact
Despite falling over 12% since setting a fresh record high (12467) on September 3, the tech-heavy Nasdaq 100 index remains constructively perched above the July high (11071.2) and continues to scale the uptrend extending from the April 21 swing-low (8345.4).
A resumption of the index’s primary uptrend looks in the offing as the MACD indicator swerves away from bearish territory and the RSI eyes a cross back above its neutral midpoint, which is indicative of swelling buying pressure.
With that in mind, a daily close back above the 21-DMA (11610) could inspire a retest of the psychologically imposing 12000 level, with a close above the 61.8% Fibonacci (12018.5) bringing the yearly high into focus.
On the other hand, a daily close below the 11250 mark could inspire a more sustained correction towards support at the June high (10310), with a break below potentially bringing the 200-DMA (9500) into play.
Nasdaq 100 index daily chart created using TradingView
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss