European stocks remain in consolidation mode since the end of last week, which is not the case for the US equity markets, where the “buy-the-dip” army of market players are propelling a rebound. However, there are some signs that the bounce is a technical reboot rather than resumption of the medium-term rally. For example, comparing returns of SPX and its European peer DAX over the past six months we can clearly see divergence driven by the US equity:
Since the end of July, SPX growth started to accelerate without any clear fundamental indications for this, which had a tinge of irrationality.
But now the Europe remains calm, so it makes sense to at least exercise caution about the current rebound in US equities. But there are strong hopes that the market will be able to extend gains if the Fed’s delivers dovish message again today.
An important part of today’s FOMC meeting is interest rate expectations for 2023 (released for the first time), and of course updated forecasts for inflation and GDP. There is a reason to believe that the Fed will revise economic forecasts upwards, taking into account the latest incoming data. Expectations of zero rates in 2023, in my view, will be a compelling bearish argument for the USD.
Taking into account Powell’s last speech in Jackson Hole, it seems obvious that whatever the Central Bank says now, everything will be attributed to guarantees of a long, ultra-soft policy. In my opinion, a lot of dovish hints from the Fed have been priced in and the bet on a bearish surprise today looks too easy.
Since mid-August, we’ve had a downtrend in the Gold which has been fueled by the pullback from historical highs and improving global economic conditions as well as reducing uncertainty. However short-term Gold uptrend has been in the making since September 8, which is a fairly typical rally on the market rumors ahead of the Fed meeting. A trading opportunity is that current prices are close to the August trend line and the ~$ 1970 horizontal level where a breakout may induce some sustained bullish momentum. Let’s see why:
A break through both of these levels could give us both a room for short-term momentum advance and a potential halt of the medium-term trend where we can fairly safely consider the target at $ 1990 (next blue resistance line & September peak)
If gold does not go up and breaks the short-term downward trend line it could make sense to consider short position after the breakout of $ 1950 level with the next stop at $ 1936, where the market may discover significant bearish potential.
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