FOMC Week Ahead

What to Expect

Preface

In a week devoid of meaningful economic data in the US, stocks had room to move higher out of the gate. Earnings reports from Tesla and Netflix were able to cool the rally on Thursday, as the Nasdaq gave back more than 2% of its recent gains. Now the focus shifts to a huge week ahead that could have profound implications on how the rest of the year plays out.

All three major US stock indexes reached new 52-week highs on Wednesday, with the S&P500 and Nasdaq getting within 6% of all-time highs. So do we break out into blue sky territory or start turning back around? My thoughts on this a little later.

Let’s dive into the upcoming week and check the charts!

Economic Calendar

Highlights

  • S&P500 Global Composite PMI – Monday
  • Consumer Confidence – Tuesday
  • FOMC Interest Rate Decision – Wednesday
  • Gross Domestic Product (Q2) – Thursday
  • Core Personal Consumption Expenditures (PCE) – Friday
https://www.fxstreet.com/economic-calendar

Data Preview & Commentary

Composite PMI – Monday

Composite PMI has remained in positive growth territory since February, led by a robust services economy. Even on the manufacturing side, hiring has remained strong through the downturn.

Analysts are expecting to see a downtick on the services side, which is a key metric for the Fed currently. A big drop could put pressure on the US dollar and allow risk assets to climb.

Consumer Confidence – Tuesday

Conference Board Consumer Confidence rocketed to 109.7 in June from 102.5 in May. That’s was the highest since January of 2022. Consumers’ recession fears also declined in June, with only 69.3% of respondents saying a recession is somewhat or very likely in the next 12 months – down from 73.2% in May.

It’s true that the soft landing scenario odds have increased. Let’s see if consumers still feel as confident in July.

FOMC – Wednesday

At this point it would be a total shock if the FOMC did not raise rates next week, as Fed Funds Futures are pricing in 100% probability. Consensus is for a 25bps hike, and it’s not so much about the action is at is about Jerome Powell’s comments at the press conference afterward. As usual, that’s where our focus will be.

Any hints about a shift in the timeline for rate cuts could significantly impact the market. So far Powell has been extremely reserved about giving clues, though he’s stated the committee does not foresee any cuts before the end of the year. Traders should prepare in case he comes out wearing his hawk hat due to the recent stock market advance. He MAY try to bring things back a notch.

GDP (Q2) – Thursday

Initially Q1 GDP was stated at 1.3% but it was later revised to 2.0%. Analysts have hedged their bets with a consensus of 1.9% for the initial Q2 reading. That gives us a clean pivot point to project what may happen in the markets. >2% could drive a risk-off scenario, while <2% may fuel more bullish bets.

Core PCE – Friday

Core PCE Price Index, the Federal Reserve’s preferred gauge of inflation, edged lower in May to 4.6% from 4.7% prior. That trend is forecast to continue with a consensus of 4.3% for June. An even bigger drop is anticipated for headline inflation – 2.9% vs 3.8% prior.

These forecasts are low, leaving lots of room for an upside surprise. Traders may want to look for more protection or larger cash positions heading into the report if there is no significant selloff in the days leading up to it.

Charts

Bitcoin 4H Chart

There’s really not much to update here with BTC. The price has now been stuck in this roughly $2k price range for a whole month. The wicks show some traders trying to take longs as close as 29.5k as possible, but the more times it gets tested, the weaker it gets. Nevertheless, support is support until it fails.

S&P500 4H Chart

SPY made a new divergent high around 4560, and is pulling back toward 4500 support. We still have the 4430 gap from earlier this month in case of a deeper correction. Channel support comes in at 4400. This is quite orderly price action and doesn’t scream of a blow-off top yet imo. In fact the rally has been broadening out, with industrials, energy, and even the banking sector starting to gain strength.

BTC/SPY Weekly Chart

It’s been a while since we’ve visited this chart, but it’s at a critical juncture here. Now would be the perfect time for BTC to start showing strength vs the S&P500, as the relationship is sitting on weekly support. Close below the yellow horizontal and there’s no reason to be looking toward BTC as an asset that will outperform in the medium term.

DXY Daily Chart

The US Dollar Index is bouncing as expected, and approaching 101.28 resistance. I’ll be watching for a reaction there, to see if it will reject and make its way down to fresh lows. However, a reclaim of that level could put pressure on risk assets in the short term.

Thanks for reading and have a great weekend!

Jay Charles

Editor in Chief, The Trading Tank.

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