S&P 500 Climbs to Six-Week Highs, US Dollar Declines on FOMC

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EnclaveFX
Jul 28, 2022
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US DOLLAR TALKING POINTS, S&P 500:

 

lThe Federal Reserve's 75 basis point rate hike caused the S&P 500 to break out and reach a new six-week high.

lMost gains from earlier in the week were erased as the US dollar retreated to support.


At the July rate decision, the Fed increased interest rates by 75 basis points, and as of right now, the S&P 500 has risen to a brand-new six-week high, and the markets have responded favorably to the news. The US dollar retreated and sought support in a confluent area near the weekly lows. The lower part of that area has been marked by a Fibonacci level of 106.24, and a longer-term Fibonacci level is at 106.62. Another trendline, the projection of which began to take effect last week, connects swing lows from mid- and late-June. This region's cluster of candle wicks shows how current support keeps the lows in place.

WHY DID THE DOLLAR FALL IF THE FED INCREASED?


The fact that the rate decision came in at 75 basis points may have disappointed some of those irrational rate rise wagers because there were growing concerns about a potential 100 basis point hike. However, during the press conference, FOMC Chair Jerome Powell made several statements that could be interpreted as encouraging risk. He noted that the Q2 slowdown was significant and that, although still firm, employment creation had slowed. Inflation is the most crucial factor in future rate increases; according to Powell, bets are cooling, and the employment cost index will be an essential indicator.


Powell also mentioned PCE as an indicator of inflation and something the bank will constantly be monitoring. He predicted that rate increases would eventually need to be curtailed, and this Friday's economic calendar just so happens to include the PCE release. 


Therefore, it is likely that this issue will continue to take center stage over the coming days as we await tomorrow's GDP and Friday's PCE, which will be followed by the University of Michigan Consumer Sentiment.


The US Dollar is still hovering close to recently reaching 19-year highs. The more significant question of whether bulls can propel USD or if the currency pulls back to a deeper support level will probably have something to do with EUR/USD. The money has been on the back foot for about two weeks.

S&P 500


On the strength of this rate decision, the S&P 500 has risen to a six-week high, extending the move from yesterday's support test by more than 100 points.