Introduction
This week brought a plethora of events, headlined by Wednesday’s FOMC rate decision. Beyond that, the Japanese Yen produced a potential medium-term reversal, while Crude Oil is on its way back down despite continued conflict in the Middle East. Join us as we get you up to speed.
Global Macro
It was FOMC week, as Warsh faced his first difficult decision as Fed chair. Does he opt to back up his promises with actions and hike rates to combat continually high inflation? Or does he choose to give himself more time, repeating Powell's playbook of promising action but constantly extending the 2% target into the future?
In the end, he opted for option two, while holding a hawkish press conference. The expectations now are for him to hike rates at the September meeting. However, that’s a long time away, and there will be lots of inflation and unemployment data between now and then; the story could thus change multiple times by the time that FOMC meeting is actually here.
Equities
Following Wednesday’s FOMC, prices had a short dip before immediately being bought up again the next day, as the S&P 500 continues to respect its very well-defined range.
S&P 500 on the Daily Timeframe
Right now it’s very hard to say which side the asset will durably break out to. From a fundamental perspective, you could make arguments for either side, but technicals are the driving force for now. In global financial markets, high-impact headlines like central bank interest rate decisions or regional conflicts often appear to drive asset prices. In reality, news narratives frequently adapt to fit existing price action.
Right now, that means a neutral view makes sense. Price is building out value, which will help us out in the future as it will be a more solid area of support.
Forex
Following this week’s FOMC, the USD has struggled for three straight days. However, the move is the biggest on USD/JPY, where much-needed relief for the Yen finally came to fruition.
USD/JPY on the Daily Timeframe
The asset put in its biggest range day in years while perfectly reacting to our pre-drawn 157.5-157.9 support zone. The BoJ will be hoping this is the start of a turnaround for the Yen as the currency has been in an unrelenting downtrend for the past couple of years.
Comparing the current top to the one set in 2024 does provide some support to this theory as the technical structure seems comparable.
USD/JPY in 2024
Commodities
In commodities land, oil is still the asset that deserves all the attention as gold and silver continue to be half-asleep.
Crude Oil on the Daily Timeframe
We’ve had this price path outlined ever since the breakdown of the $88-93 support back in early June, having revised leg D upwards upon the resumption of the Middle East conflict. And currently it still seems to be holding up, as the asset went right into the old support zone, found resistance, and for now seems set to slowly make its way back down. However, it seems unlikely that it will do so in one clean move down, as the fundamental backdrop is still too bullish for such a sharp drop.
Conclusion
One-sentence summary of the week:
Warsh doesn’t back up his words, and Yen finds some much-needed strength.