Fundamentals:
European equities could drift lower to start the session after the U.S. Federal Reserve statement expressed concern that the economy in not improving fast enough to lower the unemployment rate. The statement and the fact that there is still the possibility of an interest rate hike coming out of China are dragging down equity prices early on Wednesday.
Macro data today will come in the form of the U.K. job market report at 9:30 GMT, but this is unlikely to change the overall tone of trading.
After the FOMC meeting, the statements suggested that the Fed will be closely watching macro data and later make decisions about the possibility of more quantitative easing. Most important for Fed members are the unemployment data reports, and the last release in this category was a big disappointment. So, going forward, macro data from the U.S. needs to be viewed in this context.
The job market in England will be watched today and markets are expecting a slight improvement from the previous month. This will probably have some effect on currencies but the regional equity markets probably won’t reverse their trend unless the release shows a large deviation from expectation.
Given the overall market story this week, equity traders will probably look to make defensive plays with sectors like health care and consumer staples stocks. We did see some sharp drops in commodity prices so mining companies and other industrials could see some additional selling.
Technicals:
Commodities:
Gold followed other commodities lower overnight and dropped to a low of 1388. We have a few conflicting signals with this chart so it is important to remember that the longer term trend in intensely bullish. Drilling down to the shorter time frames, we had a failure at the 62% Fib of the move from 1430. Generally, this cautions of a drop back to at least the previous low but on the 4H chart, prices are caught in an uptrend channel. The critical levels are 1371 to the downside and 1407 to the upside. A break of support targets 1350.
Currencies:
The EUR/USD is looking weak after breaking resistance at 1.3440. Theoretically, we also got a break above the 38% Fib level at 1.3460 but the failure to close above there on a 4H basis and the retreat back to support at 1.3290 is cause for some concern. The positive here, though, are that prices are currently stalling at the convergence of the 100 and 200 period EMAs on the hourly charts and the fact that we have triple bottom support not far below, at 1.3180. Short term buyers can enter here but if this last support level breaks 1.3060 comes back into focus.
Stocks:
The S & P 500 is coming off its highs at 1246. If we drill down to the hourly chart, we can see that the current uptrend channel is breaking so we expect a retracement to at least the old highs of 1225 before we can start to think about rallying higher. Hourly indicators are bearish from mid levels so if 1225 does break we could see a fairly significant drop. We are still short from 1220 and we will scale into this position if we see 1250 tested.