Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Week Ahead: Stocks, Dollar Likely To Keep Gains As Traders Await Fed Meeting

Published 28/07/2019, 14:50
Updated 02/09/2020, 07:05

  • S&P 500 and Nasdaq hit new records as GDP beat boosts economic expectations
  • Weak technicals persist for both record-beating indices
  • Dollar hits two-year highs
  • U.S. equities are likely to open the week aiming higher ahead of a crucial Federal Reserve meeting, although weak technicals persist and investor exuberance, which is leading many traders to focus on positive news and disregard negative news, may be a sign of a market top.

    Equities hit fresh all-time highs on Friday, with Alphabet (NASDAQ:GOOGL) leading the charge on strong earnings and U.S. GDP numbers providing a solid backdrop. The GDP report and its signs of solid growth gave investors cheer, but that optimism is also being fueled by expectations of a Fed rate cut on Wednesday, a reduction that is in part a response to slowing global growth.

    U.S. growth eased in the second quarter as trade and business investment weighed on growth, but it was still enough to beat expectations. Despite a soft patch in manufacturing, the service sector of the economy is holding steady, which, in combination with healthy consumer conditions, supports the view that the economic expansion will continue. That positive data was not enough to force investors to start back peddling over their expectations for a rate cut. Investors seem to be building their bullish case on a dichotomy: positive economic data and rate cuts to promote slowing growth.

    The S&P 500 Index advanced 0.74% with all sectors except Energy (-0.51%) and Industrial Industrials (-0.22%) in the green. Communication Services (+2.86%) surged with Alphabet the outperformer. For the week, the SPX advanced 1.65%, with all sectors but Utilities (-0.65%) and Energy (-0.49%) in positive territory. Communication Services (4.3%) was again the clear leader on Alphabet’s and Facebook’s superior earnings, overshadowing Amazon (NASDAQ:AMZN)’s stock plunge after an end to its record earnings.

    S&P 500 Daily

    From a technical perspective, while the index closed above an evening star reversal two weeks ago, it closed below a broadening pattern since January 2018. Both the MACD and the RSI provide negative divergences, with the momentum-indicator set for a H&S top.

    EUR/USD Weekly Chart

    U.S. yields resumed a consolidation with the dollar advancing for the sixth straight day to within the highest since May 2017. The euro dropped to the lowest in the same period. It is taken for granted by many traders that the ECB, along with Germany, will restart stimulus measures due to the worst industrial slump in years.

    GBP/USD Weekly

    The pound slumped as a Boris Johnson win is tantamount to a no deal Brexit. Also, uncertainty increases as chances for a new general election rise. The Conservative majority is slim and likely to be whittled down to just one on August 1 when the byelection takes place.

    XAU/USD Weekly Chart

    Gold softened for the week on a strengthening dollar, but it had already completed the massive bottom going back more than 5-years. The bottom pattern’s dramatic implied coming rally fits the scenario of a weakening dollar whose legs are about to be cut out from under it by the Fed. On the other hand, both the dollar and gold rallied in the aftermath of Trump’s 2016 U.S. election victory.

    Week Ahead

    All times listed are EDT

    Monday

    Tentative: Japan – BoJ Monetary Policy Statement, Outlook Report.

    Tuesday

    Tentative: Japan – BoJ Press Conference

    10:00: U.S. – CB Consumer Confidence expected to jump to 125.0 from 121.5

    10:00: U.S. – Pending U.S. Home Sales seen to plunge to 0.5% from 1.1%

    21:00: China – China Manufacturing PMI likely to edge up to 49.6 from 49.4, still in contracting territory.

    21:30: Australia – CPI probably surged to 0.5% from 0.0%

    Wednesday

    3:55: Germany – Unemployment Change seen to have jumped in July to 3K from -1K

    5:00: Eurozone – CPI expected to have lowered to 1.1% in July from 1.3% in the previous July.

    8:15: U.S. – ADP Nonfarm Employment Change expected to jump for the second month to 150K from 102K

    8:30: CAD – GDP forecast to drop to 0.1% in May from 0.3% monthly.

    10:30: U.S. – Crude Oil Inventories seen to surge to -4.01M from -10.835M

    14:00: U.S. – FOMC Statement, Interest Rate Decision expected to be cut to 2.25% from 2.50%.

    14:30: U.S. – FOMC Press Conference

    21:45: China – Caixin Manufacturing PMI seen to edge up to 49.6 from 49.4 MoM, still within contraction territory

    Thursday

    4:30: U.K. – Manufacturing PMI probably edged down to 47.7 from 48.0 MoM

    7:00: U.K. – BoE Interest Rate Decision expected to remain at 0.75%

    7:30: U.K. – BoE Gov Carney Speaks

    10:00: U.S. – ISM Manufacturing PMI probably advanced to 52.0 from 5.17 from a month earlier.

    21:30: Australia – Retail Sales seen to have climbed to 0.3% from 0.1% MoM

    Friday

    4:30: U.K. – Construction PMI seen to rise to 46.0 from 43.1 MoM

    8:30: U.S. – Private Nonfarm Payrolls expected to fall to 160K from 191K – It is noteworthy that expectations are downward while that of the ADP Nonfarm Employment Change are upward, as the market attempts to rebalance after investors overshot expectations. Will they get it right this time?

    8:30: U.S. – Unemployment Rate expected to remain steady at 3.7 %, slightly up from the earlier 3.6%, the lowest since 1969.

    Latest comments

    Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
    Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
    Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
    It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
    Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
    © 2007-2024 - Fusion Media Limited. All Rights Reserved.