Weekly Market Outlook: FOMC & RBA in focus
With the US dollar triggering last week’s volatility, this week’s FOMC meeting minutes release on Wednesday will be widely watched. After the Fed already signalled a change in policy stance last month, traders will be looking for further clues on any new policy actions.
The Australian dollar is also likely to be in focus this week due to the RBA rate statement on Tuesday. The past few months have shown just how important interest rate announcements are to market flows.
But with parts of Australia going back into lockdown it will be interesting to see the central bank’s language on their ongoing monetary policy. The RBA Governor is also due to speak after the release of the statement, which could signal a change in language or policy.
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Trader’s Radar – RBA Rate Statement
On Tuesday 6 July, the Reserve Bank of Australia (RBA) releases its latest interest rate decision, followed by a press conference with RBA Governor Lowe. It’s likely to be a volatile time for the Australian dollar as the market has been pricing in some changes.
Some analysts are forecasting that the central bank will start to move away from its pandemic monetary policy response by cutting back on its bond purchase programme. However, while economic forecasts for the economy have been positive the Covid vaccinations have been slow and parts of the country are now in new lockdowns.
If the RBA sees this as a serious problem and decides to continue with its monetary policy, it’s likely the bulls will exit causing a further drop in the currency. However, a significant change in policy the other way could see a huge rally which is why the Australian dollar is likely to be volatile this week.
In the AUDUSD daily chart it’s clear to see the sideways range that has developed for much of this year. However, there have been a few false breaks, most notably in February. Last month, the price broke through the bottom the range but has not yet run away to the downside.
If the price can get back into the range it could represent a bullish scenario which could see higher prices back to the top of the range. But, if the price makes a new lower low cycle there could be some further downside pressure.
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Corporate Trading Updates and Stock Indices
Global stock market indices continue to trade in uptrends with varying divergences across different regions. Asia stock market indices continue to trade sideways as new infection rates hamper economic growth.
European stock market indices have continued in uptrends but have lost momentum, following concerns about the delta variant. Surprisingly, the sharp drop in the euro did not translate into higher stock indices, suggesting underlying weakness from the threat of the delta variant.
Past five-year performance of the S&P 500:
- 2020 = 16.17%
- 2019 = 29.09%
- 2018 = -5.96%
- 2017 = 19.08%
- 2016 = 8.80
Most of the stock market flows have gone into US stock market indices which have traded at new record highs. The daily chart of the S&P 500 index shown above, highlights the long-term uptrend is still intact with higher high and higher low cycle formations and several bounces of the moving averages – in particular the 50-period exponential moving average.
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