Equities Felt The Heat, FOMC Meeting Minutes Are In Focus

Yesterday, major indices were a sea of red, as the riskier assets were shaken by some economic data from the United States. In terms of today’s economic data, during the early hours of the European morning, the UK released its Halifax house price index for June. The main event on the financial agenda may be the minutes from the latest FOMC monetary policy meeting.

Equities Receive A Shake-Up

Yesterday, major indices were a sea of red, as the riskier assets were shaken by some economic data from the United States. The US delivered its services and ISM non-manufacturing PMIs for the month of June, which were not on the positive side. The services figure came out at 64.6, just slightly below the previous 64.8. The ISM non-manufacturing PMI number was a bit further away from the previous reading of 64.0, showing up at 60.4. Initially, we saw the US markets taking a deep dive, however, by the end of the US trading session, major indices managed to recover most of its losses. Nasdaq was even able to close in positive territory. The quick comeback could be explained by the fact that the market might see the negative figures as positive, for now, because this may keep the Fed away for a while from changing its current policy of supporting the economy. This is what we have mentioned in our report yesterday. Equities might still gain on such slight setback in the economic indicators. Although the US services and ISM non-manufacturing PMIs came out lower, the figures remain in expansionary territory. That said, one thing to keep in mind is that if the declines in the economic indicators persist, this is when we will most likely start worrying about possible larger setbacks in riskier assets, such as equities.

DJIA – Technical Outlook

The technical picture of DJIA on our 4-hour chart shows that after yesterday’s strong decline, the index found support near a short-term upside support line drawn from the low of June 22^nd. As long as that line stays intact, we may continue aiming higher.

A push above the 34600 barrier, marked by yesterday’s intraday swing high, could invite more buyers into the game, potentially clearing the way towards further upside. We will then target the 34693 obstacle, a break of which could set the stage for a move to the 34860 level. That level is marked by the highest point of July.

Alternatively, if the aforementioned upside line breaks and the price falls below yesterday’s low, at 34351, that would confirm a forthcoming lower low, possibly setting the stage for a further move south, as more sellers might join in. DJIA may travel to the 34204 hurdle, a break of which might open the way towards the 34124 zone, marked by the low of June 30^th. Slightly below it lies another potential support area, at 34078, which could get tested too.

Economic Data

In terms of today’s economic data, during the early hours of the European morning, the UK released its Halifax house price index for June on a MoM basis. The initial forecast stood at +1.2%, whereas the actual one showed up at -0.5%. This may have shaken the British pound a bit against some of its major counterparts. Later on, we will get the Canadian Ivey PMI for June. Currently, there is no forecast available for the indicator, however, we know that for the past 4 months, the reading continued to balance above 60.0, which is a positive sign.

GBP/USD – Technical Outlook

GBP/USD continues to trade below a short-term tentative downside resistance line taken from the high of June 11^th. For now, it seems that further declines may be possible, as our oscillators are currently pointing lower. Also, if that downside line continues to provide resistance, another decline could be possible, hence our bearish approach for now.

A drop below the 1.3772 hurdle, which is yesterday’s low, could invite a few more sellers into the game and drag the pair further south. GBP/USD could then reach the current lowest point of July, at 1.3731, a break of which would confirm a forthcoming lower low, potentially setting the stage for a drop the 1.3695 level. That level marks the low of April 13^th.

On the other hand, if the aforementioned downside line breaks and the rate climbs above the 1.3897 barrier, marked by yesterday’s high, that could invite more buyers, as a forthcoming higher high would get confirmed. GBP/USD may travel to the 1.3939 obstacle, a break of which might open the door for a push to the psychological 1.4000 zone, marked near the high of June 23^rd.

FOMC Meeting Minutes

But the main event on the financial agenda may be the minutes from the latest FOMC monetary policy meeting, when the Committee appeared much more hawkish than market participants may have expected. Although officials kept policy unchanged, they signalled that interest rates are likely to start rising in 2023. Since then, we’ve heard the individual views of several policymakers, with some of them supporting that interest rates should even start rising during 2022, and others arguing against withdrawing monetary policy support too soon. With that in mind, we will scan the minutes to see where the majority of members leans to, and what is the consensus with regards to QE. Remember that, at the press conference following the decision, Chair Powell said that there had been a first discussion about when to start withdrawing QE, but added that the talks will continue in the coming months as the economy continues to heal. With that in mind, anything pointing towards a first tapering move in the months to come, could support the US dollar further, and perhaps hurt equities somewhat.

As for the rest of today’s events

The US JOLTs job openings for May are coming out. The current forecast is for an increase, going from 9.286mln to 9.388mln.

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