FOMC was the main news for the day today, and it seemed a rather weak message from the Fed which was unusual for the market, but it sent the dollar drifting lower as a result. So far the labour market has strengthened and retail sales have been relatively stronger than anticipated, which has been strong positives for the US market. The Fed was also quick to note that the labour market was approaching maximum employment conditions, which has always been a large policy for the Fed since 2008 when the market collapsed in the wake of the financial crisis. However, the elephant in the room still remains, and that is inflation, which has remained weaker than expected in the US market and has so far held back any increase in interest rates. While the Fed has been advocating further interest rate rises and the possibility of one in September, it seems unlikely that it will happen if inflation continues to remain deflated and below the forecasted levels set out by the Fed.
For the S&P 500 it was a case of a brief drop in the market in the back of the FOMC minutes, but it looked to recover during the course of the day as the dovish tone that came out of the FOMC helped drive further bets that they made hold of rate rises during September. The 50 day moving average also was acting as dynamic support for the S&P and it will be one to watch when it comes to market movements in the coming week to see if it can contain further drops. For now any further highs will come under pressure at 2185 which is looking like a strong level of resistance in a very careful market as it looks to push higher highs. However bullish momentum has been strong on the H1 and I would look to watch momentum there for indicators for further rises and to see if there is enough to actually crack through resistance.
Oil was also the other surprise in the market as it looked to buck the three week trend and showed a drawdown in oil inventories of -2.15M barrels. There is anticipation that this will continue in the coming season as gasoline demand picks up, and this will obviously weigh on the oil inventory reading as we start to move towards winter. Oil markets are likely to find further pressure off-shore eventually, but no one is currently looking to cut supply as global oil consumption forecasts are barely moving and markets are still overstocked when it comes to supply.
On the charts oil has been looking very bullish in the lead up to today’s report as the USD weakness has also helped prop up prices. Previous movements on the H1 had been supported by 20 period moving average which acted as dynamic support. A brief breakdown of the volatility today saw it touch the 50 period moving average before being forced back. This pullback shows that bullish momentum is still very much strong in the market and the trend is very much your friend until we see a total breakdown of these key moving averages on the H1.