The XJO is expected to edge lower on open this morning following a selldown in the U.S overnight. The negativity heading into their close was largely brought about by the Fed’s future guidance update on monetary policy.
We sold off yesterday in anticipation of a negative reaction from the U.S. Coupled with the past few sessions of decent selling, last night’s falls have already been largely priced into our market, thereby explaining our muted open. Furthermore, their futures are flat, indicating that the selling has paused for the moment.
We retreated to 7,150 key support yesterday and bounced intraday. This morning will we retest it. 7,150 to 7,100 is the key support for our market and represents our recent lows. It seems likely we hold these levels today unless the U.S futures herald another session of selling tonight.
Despite the selling we saw last night, the Fed’s rhetoric was not too unexpected. A higher-for-longer, data dependant, but peak-rates narrative has been on the books for the past couple of months or so. The Fed just reaffirmed it. The selldown is a small tantrum from the market not getting a more dovish guide, but in reality, the economies are too resilient to warrant any other message.
We will of course continue to follow the U.S in the short-term, albeit we may find ourselves in a familiar position of extended falls but reluctant rallies. Headwinds for markets seem to be blowing stronger than the tailwinds and last night’s guidance from the Fed helps confirm this from the largest economy in the world.
We should assume our market will remain range-bound held in place by the broader pennant pattern and the key levels forming our sidewards channel.
US Markets
US shares closed lower overnight, with each of the three major indices closing in the red. This came after the US Federal Reserve meeting, which kept rates on hold, but which suggested that there may be another rate rise this year – whereas US investors had predicted that rates were already at the peak. Obviously this was not well received by markets, which sold off after the announcements. Overall though the Fed didn’t stray too far from their commentary in July. US markets are pretty quiet on the data front for the rest of the week, but they do look a little bearish technically. Regardless, volatility doesn’t seem too high just yet so if a sell-off occurs it looks likely to be orderly for the time being.
Four of the eleven sector groups of the SP500 closed higher overnight, with no sector seeing notable gains. Communications and technology stocks saw the most selling.
Technically the SP500 continued lower after breaking below the key support at 4,450. The index is now setting lower peaks and troughs in the short-term, suggesting it may keep falling. A potential downside target might be the 4,350 level, that was previously support.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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