Market alert: S&P500 and EURUSD
By Paul Reid
01 September 2023
S&P 500 (US500)
The S&P 500 closed higher on Wednesday as economic data indicated a slowdown in the US economy, leading to expectations that the Federal Reserve will pause rate hikes in September. Private payrolls growth was slower than expected, suggesting a softening labor market. The US economy also expanded at a slower pace in the second quarter as the GDP growth rate data showed a 0.1% increase.
The prospect of a ‘softer landing’ for the economy boosted demand for growth stocks, Nvidia reached its highest ever closing price, while Mastercard and Visa gained on reports of raising credit card fees. HP Inc tumbled, after trimming its annual forecast due to slowing demand.
Traders bets on the Fed leaving interest rates unchanged in September increased, reaching more than 88% according to the Fedwatch tool and US 30-year treasury yields slipped to a three-week low of around 4.2%. The S&P 500 and Nasdaq rose, while investors are now awaiting inflation and non-farm payroll data for further clues on interest rates.
From a technical viewpoint, the price is currently on the move to resume its bullish momentum and the moving averages also confirm the overall bullish trend, since the faster, 50-day one is trading above the slower 100-day moving average, at the time of writing.
The weekly upward trendline is also still holding strong, with no valid retests in the last 5 months, so the long-term outlook of the index seems bullish.
On the other hand, the Stochastic oscillator is in extreme overbought levels, indicating a correction in the near short term might be possible, while the price is closing in at a very strong technical resistance area of the 78.6% daily Fibonacci retracement level, as well as the upper Bollinger band around the 4,540 area.
The euro has slightly declined after recent eurozone data showed annual core inflation drop to 5.3% in August. However, the headline annual CPI remained at 5.3%, contrary to expectations for a decrease to 5.1%.
The current consensus for the European Central Bank’s decision on interest rates is for a single hike pushing the rate to 4.5%, but this might be subject to change if any major events disrupt the bank’s decision making process. The recent surprise data on inflation was mainly driven by energy prices, and is not expected to significantly influence the ECB's decision in the coming weeks.
According to technical analysis the price found the 78.6% weekly Fibonacci retracement level and lower Bollinger band, and has since corrected to the upside. The price is currently testing the 61.8% weekly Fibonacci retracement level, while the Stochastic oscillator has shifted back to neutral, indicating no overbought or oversold levels.
In the case of weak data from the US on 1 September, we might see the price continue its recent bullish correction, with the first area of strong technical resistance laying around $1.10, which consists of the psychological resistance of the round number, the 50-day moving average as well as the upper boundary of the Bollinger bands.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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