Daily Outlook

Stock markets pending a Fed decision

Market Focus
This week investors’ attention will be closely focused on the FOMC decision, as well as the Bank of Japan and the Bank of England meetings. Speculations surrounding expectations that the US economy will need an even softer monetary policy were intensified after the weak macroeconomic data released on Monday. The Empire State Manufacturing Index from the NY Fed fell by 26.4 points to -8.6 in June – the sharpest drop in its record.

In addition, the NAHB Housing Market Index has decreased from 66 to 64, contrary to the forecasts for growth. Despite this, analysts do not expect a reduction in interest rates during the upcoming Wednesday meeting. Already published weak statistical data has placed significant pressure on the Fed, that can lead to a softer tone of commentaries and possible hints of subsequent rate cuts.

Key US indices were under pressure after the release of weak data but quickly shook it off, remaining near levels at the end of the week. In addition, as regards SPX, a moderately optimistic picture remains here. As the FxPro Analyst Team said, the index is above the 50- and 200-day averages, but its fluctuations significantly decreased, as investors are more cautious before an important week, saturated with the decisions of the world’s key central banks.

On Friday, the euro fell against the dollar, losing 0.6% to 1.1200. However, during slow trading activity on Monday, the EURUSD rose to 1.1230, managing to remain above the 50-day MA and resisting the previous downtrend. However, the recovery in demand for the dollar is now threatening the stability of the pivot trend. If the Dollar index continues in an upwards movement, it could lead to the fall of the EURUSD to 1.11000 later this week.

Last Friday, gold hit 6-year highs at 1358, after which it suffered a sharp sale-off, which threw off the precious metal on Monday to 1333 an ounce. Such a move triggered a new wave of purchases, which returned prices to 1345. We should pay attention to the fact that gold once again sharply turned down from the area of multiyear highs, which increases the chances of further pressure from the bears.

Chart of the day: GBPUSD
On Tuesday morning, the British pound was one step away from an important signal level, below which the GBPUSD only fell during the period of maximum uncertainty around Brexit. Over the past week, this pair lost about 2%, so the depreciation under 1.2500 may be an important signal of financial market despair, with regards to Britain’s prospects after leaving the EU. In the event of any further continuation of the downward trend, the British currency buyers could withdraw from the market, leading to a period of increased volatility. It is also possible that such a long downward movement of the national currency will force the Bank of England to step in with economic support to help to protect any further weakening of the pound.

The FxPro Analyst Team

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