Weekly Market Outlook: FOMC and BOE take centre stage

September 19, 2021 09:05

With the US dollar ending last week as one of the strongest currencies, all eyes now turn to the FOMC Statement and Press Conference on Wednesday evening. In the light of weak economic data are the Fed still resolute on tapering this year? If so, the US dollar could fly so it’s one to watch.

The British pound has also been a currency that has exhibited some strength in recent weeks. With inflation soaring, analysts have been forecasting that the Bank of England will end its quantitative easing programme sooner rather than later. But weak data has since seen the pound become weaker, making Thursday’s announcement that much more important.

This week also has updates from the Swiss National Bank and a range of European PMI figures. However, global stock market indices are likely to be the most in focus after every single global stock market index ended in the red last week with key levels of technical support broken.

You can learn more about some of the global themes affecting the markets in this selection of new education articles.

Weekly Forex Calendar

Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admirals.

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Trader’s Radar – FOMC Press Conference

On Wednesday 22 September at 7 pm BST, the Federal Reserve releases its latest monetary policy statement and economic projections. This is followed by a press conference with Fed Chairman Jerome Powell at 7.30 pm BST.

Analysts are forecasting that the Fed will signal that tapering (bringing to an end their Covid-related stimulus measures) will begin this year. Some are forecasting it will start in November and some say in December but hopefully, Powell will give some insight into the timing of the tapering process.

While some recent economic figures have been weak, a sign that the Fed is going to start tapering anyway could be a big boost for the US dollar. This was evident from last week as the US dollar rose against all other major currencies.

As some of this announcement may already be priced in, investors will be focused on any updates to the dot plot chart. Currently, it signals a potential interest rate hike for 2023. But with some FOMC members becoming more hawkish it could move to a potential 2022 rate hike which would likely be another boon for the US dollar.

Source: Admirals MetaTrader 5, USDX, Monthly - Data range: from 1 Jun 2013 to 19 Sep 2021, performed on 19 Sep 2021 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.

The monthly price chart above shows a long-term trading range that has developed on the US dollar index (USDX). The price has most recently bounced higher from the lower horizontal support level around ~$89.13.

What is most interesting is that an inverted head and shoulders pattern has formed and the price has broken through and stayed above the neckline (the small descending black line).

If buyers can stay in control after this week’s news announcements then traders will be looking for the price to retest the start of the inverted head and shoulders pattern which is around ~$94.77.

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Corporate Trading Updates and Stock Indices

Global stock market indices tumbled last week as risk sentiment soured. A stronger US dollar and potential risks surrounding the crisis of Evergrande, China’s second biggest property company that cannot meet its debt obligations, helped investors to book profits on what has been an incredible rally higher.

Most analysts have been calling for a long-overdue correction and this month has a historical tendency to be much weaker for stock markets. The unevenness of global stock market trends is also telling. Only US stock market indices have been surging higher with European and Asia stock market indices lagging behind.

Source: Admirals MetaTrader 5, SP500, Daily - Data range: from 17 Dec 2021 to 19 Sep 2021, performed on 19 Sep 2021 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. Past five-year performance of the S&P 500: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80%

The chart above shows the performance of the S&P 500 stock market index. It’s clear to see the long-term uptrend as confirmed by the 20-period (blue) exponential moving average (EMA) above the 50-period (red) EMA which is above the 100-period (green) EMA.

While buyers have historically turned up around the 50-period EMA, last Friday the price managed to close below. If the price stays below this EMA, then traders will be looking towards the 100-period EMA for the next level of support as a potential target for short-sellers or a potential buy zone for longer-term ‘buy the dip’ traders.

Either way, it is setting up to be a very interesting week!

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Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.