Stock Market Breadth
US and European markets have been swinging between gains and losses throughout this week with a slightly bearish bias. Today, the futures for the US and European markets are struggling to hold on to their gains, as most traders are likely to be avoiding taking any risks ahead of today’s significant event, when Jerome Powell will speak. A lot is anticipated from him, and this increases the bar in terms of information that traders are expecting, and the expectation is that his message will be same as before, but with more of a hawkish tone.
Investors are anticipating that Federal Reserve Chairman Jerome Powell would provide fresh direction at his speech in Jackson Hole, Wyoming, on Friday. However, it is possible that he could convey the same message about fighting inflation instead, but with a far more forceful tone.
It is anticipated that Powell would underline that the Federal Reserve will use all the fire power it needs in the form of interest rate rises to put an end to inflation. In contrast to the market’s assumption that the Fed would begin to lower interest rates next year, he is also expected to note that when the Fed completes its rate hikes, it is likely to keep them unchanged.
Those who follow the Fed believe that Powell is unlikely to deliver any meaningful hints that may settle the market’s discussion over whether the central bank will increase interest rates by a quarter of a point or three-quarters of a point at its next policy meeting on the 21st of September. Instead, Powell is anticipated to underline the Fed’s reliance on incoming economic data. Before the Fed’s September meeting, there will be another important release of jobs data next Friday, and the consumer price index for August on the 13th of September.
The futures market has been wagering that a 0.75% point rise, which is equivalent to a three-quarter point increase, would be more likely to occur at the meeting in September. The interest rates were increased by a quarter of a percent in both June and July by the central bank. The federal funds rate is now in a range that goes from 2.25% to 2.5%, and the Fed is aiming for an end rate, also known as a terminal rate, that ranges from 3.50% to 3.75% by the beginning of the first quarter of next year.
In terms of the forex market, the Dollar Index is holding on to its strength while the EUR/USD continues to orbit near the parity level while traders are hoping that the pair will stay above parity. The hawkish message from the Fed could make the Dollar Index higher, thus creating more issues for the EUR/USD bulls. If the price continues to fall, the next major support could be 0.95.
On Friday, gold prices have reached an important price level which is the 50-day SMA on the daily time frame, after rallying pretty much every single day of the week. Gold traders know that inflation is not going to go away anytime soon, and the Fed cannot make it go away by flicking a switch. Gold serves as a hedge against inflation and this is keeping the price of gold elevated.
Brent and Crude oil prices are on track to record their weekly gains as investors are feeling optimistic about two things. Firstly, there is some optimism among traders that recession may not be that deep, and that means oil demand may remain robust. And from a supply perspective, traders know that OPEC is waiting for one thing and one thing only before they will announce their cuts, and that is the Iranian nuclear deal.
The sentiment certainly seems to be shifting when it comes to the crypto market. This week we have seen Bitcoin prices moving in no direction at all. Although a small bearish tilt does remain in the BTC prices. The price range has been immensely narrow and there is no doubt that capitulation is coming for Bitcoin. If we look at the current trend, then the odds are strong that the next move is likely to be to the downside, and that means that the price could drop all the way to the 15k price level. However, if bulls take control of the price action, and break out takes place to the upside, then the Bitcoin price could easily reach the 32K mark.
In terms of fundamentals, it is the Fed Chairman’s speech which matters the most. Remember, just like gold, BTC is also considered a hedge against inflation and this element continues to support the price of BTC. At the same time, the strong correlation with the Fed’s monetary policy matters a lot as well and any hawkish message from the Fed is likely to hurt the BTC prices today.
As for Ethereum, all eyes remain on one event and one event only which is dubbed as “merge”. There are some reports that developers have found some important bug which they are trying to tackle. If the merge is successful, we could see the prices moving higher.
The Asian stock market traded mostly higher on the last trading day of the week. The Nikkei index increased by 0.52%. The Shanghai index declined by 0.02%, while the KOSPI index decreased by 0.20%. The HSI index soared by 0.57%.
Dow Jones and S&P 500: Market Breadth
The Dow Jones’ market breadth gained further momentum. 52% of the Dow Jones stocks are trading above their 200-day moving average.
The S&P 500 stock breadth also confirmed some more strength in its momentum. 53% of the shares traded above their 200-day moving average.
Dow Jones Futures Today
The Dow Jones futures are trading flat today. In terms of economic data, investors will be looking at Jerome Powell’s speech today, which is expected at 14:00 GMT. In addition to this, the Core PCE price index m/m data is coming out at 12:30 GMT and the forecast is for 0.2%, while the previous reading was at 0.6%.
The Dow Jones futures are trading lower today, and the index is struggling to break above the 200-day SMA, which shows that the bulls are running out of steam. Having said that, the bulls are still in control of the price as the 50-day SMA has broken above the 100-day SMA on the daily time frame, which is a strong bullish signal for the price action. The current retracement in the price may find its support near its 50-day SMA which could be an opportunity to bag some bargains as the current price action has a lot of momentum behind it.
The near-term support is 32,105, while the resistance is 35,265.
Stock Market Rally
The S&P 500 stock index closed higher on Thursday; the index increased by 0.98%. The material sector led the index higher; and all 11 closed higher yesterday.
The Dow index increased on the second to last trading day of the week; the Dow stocks moved the index higher by 0.06%. Twenty eight shares advanced, while two shares closed lower.
The NASDAQ composite, the tech-heavy index, closed higher by 1.67% yesterday.