While some might still doubt Fed J. Powell’s commitment to remain supportive, keeping interest rates near zero and maintaining bond purchases is almost a given for today’s FOMC statement. The focus will rather be on the panel’s economic forecasts for a gauge of how much pressure exactly Powell will have to deal with going forward. The decision on banks’ SLR extension is another key focus, as it will have major implications on the bond market, turning US banks into net sellers and in turn, increasing the pace of rising yields.
Pressure is definitely building with the Fed today expected to substantially revise its growth prediction for the economy, a task already done by major investment banks with higher bracket 2021 GDP forecasts topping 8%. Even though, an accommodative Powell focusing on the long way to go to achieve the Fed’s employment mandate is the expected market-friendly tone, today’s events will surely carry with it a lot of volatility and market repositioning. With valuations already over-extended, the expectation of higher interest rates is likely to further weigh on growth stocks with the technology sector at the forefront. So far today, US10Y yields have breached 1.65% with the Nasdaq 100 Futures back below 13000.
Technical analysis on the 4H chart favors further downside as the index prints below its previous high ( to be confirmed on a close below 1380) while the MACD convergence-divergence indicator is showing a bearish divergence with the MACD line crossing the signal line from above. 12900 and 12750 are the closest support targets on the downside, while prints above the 200 period SMA and 13250 are needed to boost bullish momentum
Karim Maalouf, FRM
Senior Market Analyst at SquaredFinancial
Karim started his career at a top bank in Credit Risk portfolio management, moving onto Financial and Liquidity Risk, consulting, investment banking, building knowledge and trading experience along the way only to develop a passion for the fascinating world of trading and diverse trading strategies (high frequency, algorithmic and day trading) benefiting from mentorship of leading industry experts. Karim believes that deep education is essential before risking any money. He joined Squared Research in 2018 as an Equity Analyst, but continues to trade on a discretionary basis, using successfully developed methodologies coupled with effective risk management and a winning psychology. Karim obtained a Bachelors’ Degree in Economics from the American University of Beirut (AUB) in 2011, is FRM© certified with the Global Association of Risk Professionals (GARP) since 2017, has successfully passed CFA (Chartered Financial Analyst) Level I, and CMT (Chartered Market Technician) level II.
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