S&P 500 Faces Its First Serious Range Break Threat with Fed’s Powell Remarks


S&P 500, China, EURUSD, Fed and ECB Rate Forecasts Talking Points:

  • The Market Perspective: USDJPY Bullish Above 141; EURUSD Bullish Above 1.0000; Gold Bearish Below 1,750
  • The S&P 500’s tight 3.2 percent range has stretched to 12-days – the ‘quietest’ in 12 months – while the Dollar has fallen into its own narrow field above the 200-day SMA
  • While US and European confidence figures this past session were noteworthy, the most capable global fodder hits the wires tomorrow with the Fed Chairman Powell’s policy signaling

While we could perhaps afford some level of the distraction that kept the US equity indices and currency to their tight ranges to the World Cup as the United States fought to stay in the tournament, the real curb on a significant break from the extremely contained ranges is likely due to anticipation for what’s in store over the next 72 hours. There were significant events crossing the wires this past session including the US consumer confidence report from the Conference Board – which just barely ‘beat expectations’ of a slowdown to 100.2 (vs 100.0) – but they were too many steps removed from a holistic reflection of the global economy and monetary policy backdrop. That will change in the upcoming session as we come upon events that will inform the major central banks’ forecasts – a more distinctive speculative theme versus the open-ended recession fears. Technically, the S&P 500 is working its way deeper into consolidation that will end with a break. The question for me is whether it will be a break of intent based on a significant fundamental shift or a mere technical event that will struggle for follow through.

Chart of the S&P 500 with 20, 100 and 200-Day SMAs, 12-Day Range and ATR (Daily)

Chart Created on Tradingview Platform

Taking stock of the economic docket through the rest of this week, there is a range of high-profile event risk to sort through. I will be taking stock of the economic health of the global financial system through events like the Chinese November PMIs, emerging market 3Q GDP updates (Turkey, India and Brazil) and of course Friday’s NFPs. However, monetary policy may be the more hefty theme through the docket offering. The FOMC Beige Book is due at 19:00 GMT today. The report is interesting but not necessarily market moving. Its importance is to set the two week countdown to the next FOMC rate decision, which is drawing heavy speculation around the intent for a 75 or 50 basis point move. Just as important is the PCE deflator (Fed’s favorite inflation indicator) on Thursday and NFPs on Friday for insight on the dual mandate. And, amid all this fundamental activity, the FOMC’s media blackout before the event kicks in this weekend. So, messaging to help reduce market ‘surprise’ before December 14th presents a very small window. To help steer this anticipation, Fed Chairman Powell will have a chance to offer perspective today at 18:30 GMT – just before the countdown begins.

Critical Macro Event Risk on Global Economic Calendar for the Next 48 Hours

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Calendar Created by John Kicklighter

The Fed’s tempo of rate hikes remains of great concern and Powell’s remarks will be processed for the suggestion that the group could extend its 75 basis point run, but the real focus is perspective he offers around the ‘terminal’ level of the Fed Funds rate. That means the level that the benchmark rate is likely to top out through this particular leg of global policy trends. FOMC officials seem to have been making a concerted effort to signal an intent to raise the benchmark rate to levels higher than their official September forecasts in the SEP – and higher than what the markets have been projecting these past few weeks. Despite the effort, the markets still seem to be discounting the possibility, perhaps because they have placed a greater emphasis on growth concerns or simply believe the Fed will not go through with it. Regardless, the disparity in rate forecasts from the market and Fed make for potential fundamental volatility for the Dollar. Add to that the consideration that the Eurozone’s CPI is also due in this upcoming session and a pair like EURUSD will be even more interesting – though the US event risk will likely curb reaction from the pair until it is clarified.

Change in Longs Shorts OI
Daily-1%-5%-3%
Weekly4%-8%-3%

Chart of the EURUSD with 20 and 100-Day SMAs Overlaid with Inverted Euro Volatility Index (Daily)

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Chart Created on Tradingview Platform

While the US and Eurozone monetary policy perspective is of top fundamental influence through the coming session, it isn’t the only fundamental event risk macro traders can monitor for significant impact. From the US docket itself, we will also be taking in the ADP private payrolls and JOLTS job openings/quits, which is good precursor to Friday payrolls. Outside of the US docket, the Indian 3Q GDP figure could find a sensitive USDINR exchange rate. This past session, the release of the Canadian GDP figures – moreso the disappointing October figures rather than the lagging September/3Q data – sent the Loonie sliding. While USDCAD notched a smart break above 1.3500, pairs with less fundamental counter-ballast have projected more run. NZDCAD below highlights more of the divergence in monetary policy that is following growth support.

Chart of NZDCAD with 20 and 100-Day SMAs Overlaid with NZ-CA 3-Month Yield Spread (Daily)

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Chart Created on Tradingview Platform


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