US500 struggles to hold the 4,000 point barrier ahead of FOMC minutes💥
The last FOMC meeting ended with a 25 basis point hike and, until recently, the market had assumed that we were close to the end of the current tightening cycle. This narrative changed dramatically after the reading of key macro data for January, which indicated that the labor market is doing very well and consumers are not giving up on their purchases. The spectre of continued inflationary pressures is driving expectations of larger-than-expected rate rises. Will today's FOMC Minutes manage to create turmoil in the stock markets?
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Open account Try demo Download mobile app Download mobile appVery good macro data and a hawkish narrative from Fed bankers have significantly raised the level of implied interest rates. Currently, the money market is pricing the Fed's forward rate at 5.25%-5.5%. Source: Bloomberg
Minutes do not take into account recent data
Since the Fed's last decision, macro data has surprised strongly on the upside which, combined with the bankers' narrative of the Board's decision-making dependence on incoming economic data, means that there is very little room for surprise. The weight of the details of the latest FOMC meeting published today may therefore recede into the background and give way to the statements of individual Federal Reserve bankers.
As a rule, the publication of the FOMC Minutes does not bring excessive movements in the quotations of futures contracts based on the S&P500 index. In view of today's minutes, the chance of noting major deviations is negligible. Source: Bloomberg
What to look out for in particular?
Today's report may, however, provide some valuable clues as to future FOMC decisions. Investors should first and foremost focus on the information on how many bankers thought it was justified to raise rates by more than 25 points. If the report shows that there were convictions among Committee members that the FOMC was not doing enough, this, combined with a strong labor market, strong retail sales and persistent inflation, could reinforce the dominance of the bears in the market.
US500 technical analysis:
US500 started a sharp pull back after buyers failed to break above the crucial 4,175 pts resistance zone, which coincides with 23.6% Fibonacci retracement of the upward wave launched in March 2020 and upper limit of the 1:1 structure. Index is currently testing psychological support at 4000 pts. If current sentiment prevails, downward move may deepen towards next major support at 3800 pts, which is marked with previous price reactions and 38.2% retracement. On the other hand, the medium-term 50-day SMA (green line) crossed above the long-term 200-day SMA (red line). This formed a bullish ‘golden cross’ formation, which can at times precede a move higher. Source: xStation 5
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