Be ready to trade the FOMC Minutes
BY Janne Muta, M.Sc in Finance|July 5, 2023
Caixin Services PMI declined but remained above the crucial 50 level. The services sector remains in expansion. Today’s main risk event is the FOMC Meeting Minutes. The Fed Fund Futures traders are currently pricing an 88.7% probability for a 25 bp hike in June. The markets, therefore, take it for granted that the rates do go higher at least one more step before the Fed is expected to pause.
If the meeting minutes reveal something else that’s likely to create additional volatility and trading opportunities for us. Surprises in the minutes would be especially likely to move Nasdaq and the USDJPY so keep an eye on these markets.
After rallying strongly DAX has now retraced for two days and has now reached the levels where the rally started. This is a potential level for the market to attract buyers but before we see it happening we should remain patient and not jump the gun. At the time of writing this, there has been a a reaction to the support level, but we don't know yet if this turns to a proper market reversal. Monitor DAX to see if there are more signs of strength.
So trade what you see, not what you expect. Long trades are warranted if you see the buyers engaging the market. Institutional traders buy weakness because they have to due to the vast position sizes they have to accumulate. Retail traders, however, don’t have this problem and can wait and buy only when they see institutional money flows turning the market bullish. If the market doesn’t turn bullish, look for a move to 15 600.
For the last two days, the Nasdaq CFD (NAS) has been consolidating below the June high (15 282). Now there's some weakness and the market has broken the 15 154 support level. Below 15 154, look for a move to 15 100 or so and then possibly to 15 020 on extension. Above 15 154, the uptrend is still on and the market could test the June high at 15 300.
Nasdaq being a growth company index is sensitive to the market expectations on the future interest rates. The future cost of financing impacts the future cash flow valuations of these companies. Therefore today’s FOMC Meeting Minutes could have a substantial impact on how willing the Nasdaq bulls are to overcome the supply often available at previous key resistance levels.
USDJPY remains bullish above 144.00 and is likely to test the 145.00 resistance. A decisive break below 144.00 could move the market down to 143.30. The continued monetary policy divergence between the Fed and the BOJ supports the dollar against the Yen.
Nvidia remains bullish above 375. The market has created a new higher swing low in the daily chart (at 400). The stock has rocketed higher since we highlighted its AI-related potential in May. The stock trades now over 25% higher than at the time of our report. Nvidia remains a leader among the AI stocks and could have more upside potential. But, once again: Trade only what you see, not what you expect! . A break below 400 would probably move the stock down to 375. A decisive break below 375 would mean the stock isn’t anymore attracting new buyers
The Next Main Risk Events
- USOIL OPEC Meetings
- USD FOMC Meeting Minutes
- AUD Trade Balance
- USD ADP Non-Farm Employment Change
- USD Unemployment Claims
- USD ISM Services PMI
- USD JOLTS Job Openings
- CHF Foreign Currency Reserves
- GBP BOE Gov Bailey Speaks
- CAD Employment Change
- CAD Unemployment Rate
- USD Average Hourly Earnings m/m
- USD Non-Farm Employment Change
- USD Unemployment Rate
- CAD Ivey PMI
- EUR ECB President Lagarde Speaks
For more information and details see the TIOmarkets economic calendar.
Chief Market Analyst
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Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.
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