Hello traders and welcome back to another forum where I share my personal market sentiment outlook for the week ahead that could lead to some trading ideas or bias. Likewise this is my own opinion and please do your own due diligence.
SPX
Starting with the S&P 500 (SPX), the SPX managed to end the month with strong bullish strength after last week’s data showed falling inflation from the PCE price index to 4.2% while the Core PCE price index remains at 0.3%. With signs of falling inflation, there is expectation in the market of a near end to the FED tightening cycle. However, this week we have the FED FOMC meeting and interest rate decision, and the market is expecting a 25 bps rate hike. Comments from Powell would give further insight into what the market expects moving forward. Nevertheless, raising SPX poses a risk to the environment.
At a technical level, the SPX managed to bounce off the 4072 support level and looks eager to test the 4200 resistance level. A further break above the 4200 level would further boost the bullishness of risk on assets such as equities and currencies. Looking at the 50- and the 200-day moving averages (DMAs), the SPX is still trading above both DMAs, which imply bullish market expectations, while the stochastic shows possible further bullish momentum in the upcoming trading sessions.
BOND YIELDS
The US 10-year bond yields (US10Y) are currently showing choppy price behavior from last week’s trading sessions. Both the 3.6% and the 3.35% would still be the key pivot points to watch coming into the trading week ahead, but the expected 25 bps rate hike from the FED on May 3, 2023, can be positive for the US10Y, which we hope could give more of a clear directional bias for the US10Y. The choppy price behavior, however, could signal that the market is not quite certain of the current global economic outlook.
From a technical perspective, the US10Y is currently trading below both the 50 and the 200 DMA, which does put more weight on the downside for bond yields, and the stochastic is currently neutral and in the middle of the range, which can imply possible momentum to both the upside and downside.
VIX
The VIX index, also known as the fear index, managed to slump even further to the 15 level, which is the lowest level seen since January 2022. Such a low level in the VIX does imply investor risk appetite to further increase and gives out a risk-on bias, which can be positive for risk assets such as equities and risk on currencies. However, as we come into a busy week due to numerous key economic data releases, which are to be mentioned in the economic calendar section, we can expect high volatility, especially around the FOMC meetings, as comments from Powell can give a better sense of direction and what to expect going forward.
INTEREST RATE
With just two days before the FOMC meetings, the market is still expecting a 25-bps rate hike from the FED and expects interest rates to remain unchanged until July, while rate cuts are being priced in starting in September. However, with inflation remaining above 2% and no devastating recessions or economic collapses, it seems that interest rate cuts could not be expected, at least in 2023, like the FED forecast.
Source: CMEgroup
ECONOMIC CALENDAR
Looking at the economic calendar for the week ahead, there will be numerous key economic data releases that can cause high volatility and event risk. However, focus will be on the central banks interest decisions and comments (RBA and FED), PMIs (US and CA), inflation (EU), and unemployment numbers (EU, CA, and US).
Source: Trading economics