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US dollar and S&P 500 chart different paths before the Fed. What’s next for USD, SPX?

USD, S&P 500 FORECAST:

  • U.S. dollar Slides on Monday before those on Wednesday FOMC Decision
  • Now it is S&P 500 The price is rising after Friday’s sell-off, but its moves lack strong conviction
  • The Fed’s monetary policy The outlook will be crucial for financial markets in the near future

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Most read: Euro Forecast: The fate of EUR/USD is in the hands of the Fed, EUR/JPY overcomes the falling wedge

The US dollar (DXY index) was subdued on Monday, but managed to hold near its multi-month peak ahead of a significant event: the FOMC announcement. Meanwhile, the S&P 500 saw a modest uptick, but its moves lacked conviction as traders refrained from making big directional bets, which could be crucial for financial assets, ahead of the Federal Reserve’s ruling.

The Federal Reserve will release its September monetary policy decision on Wednesday. Although no interest rate adjustments are expected, market participants willSummary of economic forecasts”, The scatter plots in particular provide valuable insights into the ongoing streamlining campaign.

Forex and stock traders should pay attention to two important aspects: the Final target for the US Federal Reserve’s key interest rate and that Extent of monetary policy accommodation planned for 2024.

In its June forecasts, the Fed assumed a median ending interest rate of 5.625%, a level that would represent an additional quarter-point increase over the current stance. Investors are doubtful about the likelihood of another rate hike in 2023. Therefore, any signs that reinforce commitment to further tightening could trigger a hawkish reassessment of interest rate expectations, driving the US dollar higher and driving the S&P 500 lower could.

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Related: Gold price is rebounding from Fibonacci support and attacking cluster resistance. What now?

Given the forward-looking nature of markets, it is important to keep an eye on the Fed’s longer-term forecasts. With the U.S. economy showing impressive resilience and inflation extremely stable, traders should watch carefully to see whether policymakers stick to their previous quarterly forecasts, which expected cumulative easing of 100 basis points in 2024.

The FOMC has been burned several times false signs of disinflation. Therefore, the country will be careful not to send signals that could be construed as excessively dovish, as such signals could jeopardize its efforts to restore price stability, especially now that oil prices are approaching $100 per barrel.

In this context, it wouldn’t be surprising to see this Fewer interest rate cuts are planned for 2024 than before. This scenario could boost Treasury yields across the curve, particularly short-term ones, creating a constructive environment for the greenback and a hostile environment for risk assets like stocks. This means that the day of reckoning could be imminent for both the S&P 500 and the Nasdaq 100.

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US DOLLAR (DXY) TECHNICAL ANALYSIS

In early September, the US dollar staged a strong rally, breaking through trendline resistance and reaching its highest level in six months.

With bullish momentum on its side, the DXY index may be able to stay on its uptrend, especially if it stays above the technical support at 104.50. In such a scenario, we could see a move towards 105.38, a key ceiling created by the 38.2% Fibonacci retracement of the September 2022/July 2023 decline. With further strength, a possible retest of the March highs seems likely.

Conversely, if the sellers regain control and initiate a significant pullback, the first support lies at 104.50, followed by 103.80. In case of further weakness, sellers could be encouraged to launch an attack towards 103.50.

US DOLLAR (DXY) TECHNICAL CHART.

Chart of the US Dollar Index (DXY) created with TradingView

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S&P 500 TECHNICAL ANALYSIS

The S&P 500 experienced a sell-off last Friday after failing to break through the key 4,560 ceiling, with sellers pushing the stock benchmark all the way to the psychological 4,500 mark, where prices appeared to have found some sort of support early in the new index’s week .

Looking ahead, buying momentum could increase if the index manages to stay above 4,500, setting the stage for a retest of trendline resistance near 4,560. With further strength, bulls could muster the resolve to launch an all-out assault on the 2023 highs, which are just below 4,640.

In the event of a pullback, initial support lies at 4,500, but a break below this level could threaten further losses, with the next downside area of ​​interest at 4,440 and then 4,415.

S&P 500 TECHNICAL CHART

S&P 500 futures chart created with TradingView

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