Talking Points:
- FOMC raised 25-bps, light calendar next week; S&P could test support line
- ECB sparked big volatility in euro and stocks; DAX difficult to get a handle on
- BoE on Thursday; FTSE range has traders scratching their heads for directional cues
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S&P 500
Last week, the Fed raised rates on Wednesday by the expected 25-bps and indicated another two rate hikes this year, also in line with expectations. Looking ahead to next week, there aren’t any ‘high’ impact data events on the calendar. For a schedule of all data release times and estimates, check out the economic calendar.
Broadly speaking the S&P 500 is still a tough handle to get a hold on; is it slowly gearing up for a move to record levels or is tepid momentum going to turn into another swoon soon? Since bottoming in March, we are seeing a series of higher-highs and higher-lows, which must be respected, but again with momentum lacking it wouldn’t take much to turn things down. For now, short-term weakness could take the market down to the trend-line from last month; a touch of this line would act as a good test moving forward, and a possible buy-the-dip opportunity.
S&P 500 Daily Chart
DAX
On Thursday, the ECB sent the euro tumbling and DAX sharply higher with their cautious stance towards removal of stimulus. With a dovish central bank Euro-zone stocks saw significant bids across the board. Looking ahead to next week, Draghi will be speaking on Monday-Wednesday, but with the ECB just behind us his words may mean little to markets.
The ECB-fueled rally pushed the DAX up to a trend-line running down off the record high and near the May peak. This may keep momentum capped in the near-term, with choppy trading to develop as the market digests Thursday’s move. The most substantial form of support can be found via the trend-line rising up from the March low.
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DAX Daily Chart
FTSE
The FTSE and GBP had headlines to contend with last week (i.e. – Brexit), when the dust settled sterling dropped hard and the FTSE, as was the case with the Euro-zone, got a tailwind from currency weakness. In the week ahead, traders will be focused on the BoE meeting on Thursday. It’s not a ‘Super Thursday’, so the meeting may not be all that ‘exciting’.
Right now, the FTSE in a word, is a mess of choppy price action. As discussed on Friday, it’s a tough call as to whether it’s a lower-high forming or if the index is simply gaining its footing for another run at record levels. Friday’s slice back lower, though, could carry the market through support, but until then it’s a range-trader’s market; keep an eye on 7600/7550.
FTSE Daily Chart
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
