FOMC Decision Day: Will the Market Rally or Fade?
Markets Edge Higher Ahead of FOMC, But Will It Hold?
Markets Edge Higher Ahead of FOMC, But Will It Hold?
Today is the big day—the Federal Reserve's FOMC decision will dictate the market's direction. Overnight, we saw bullishness in ES and NQ, but will the momentum last, or is this just a pre-event rally before volatility kicks in?
Adding to today’s macro picture, the Bank of Japan (BOJ) held rates steady, keeping its policy rate unchanged at 0.5%. This was widely expected, but with global economic uncertainty rising, traders are now focusing on the Fed’s next move and its potential impact on risk assets.
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Recap of Last Week: A Market Struggling to Find Direction
📉 The market has failed to follow through on its attempted rebounds, with ES barely able to hold 5600 as key support.
📉 Volatility has been ticking up, but VIX is still around 23, meaning we haven’t hit full-blown panic levels yet.
📉 Chinese stocks (BABA, BIDU, FUTU) and European indices have seen stronger momentum, sparking questions about capital rotation.
Despite a weak close yesterday, the overnight bullish sentiment is giving bulls some hope. But the big question remains:
Will the Fed Deliver the Green Light for a Rally?
What to Expect from FOMC?
The Fed is expected to hold rates steady at 4.25%-4.50%, but the market isn’t just focused on the decision itself—it’s what Powell says in the press conference that will truly move the market.
Scenario 1: The Fed Cuts Rates Earlier Than Expected – If Powell hints at a rate cut sooner than June, we could see a sharp rally in equities as risk appetite returns.
Scenario 2: The Fed Holds Steady With No Clear Guidance – This could be a bearish signal, as it suggests the Fed is unsure about future risks. Without a clear plan, markets might sell off sharply after an initial reaction.
Scenario 3: The Fed Stays Hawkish, No Rate Cuts Anytime Soon – The worst-case scenario for bulls. If Powell signals no rate cuts in 2024, expect a significant downside move, with ES likely breaking below 5550 support.
Money Rotation: Is Capital Moving Out of the U.S.?
An interesting development is the sudden bullish momentum in Chinese and European markets:
Chinese stocks like BABA, BIDU, and FUTU are rallying as investors seek undervalued opportunities outside of the U.S.
European markets, including the German stock exchange, are rising, hinting that investors may be looking for safer plays amid U.S. economic concerns.
Is this a sign that smart money sees bigger risks in the U.S. economy? With rising recession fears, inflation concerns, and ongoing tariff uncertainty, global investors may be hedging their bets elsewhere.
Key Levels to Watch Post-FOMC
ES (S&P 500 Futures) – Can It Reclaim 5700?
Resistance: 5700 – Needs to reclaim this level for any sustainable rally.
Support: 5550 – A break below this would signal further downside risk.
NQ (Nasdaq Futures) – Tech Needs to Hold Up
Resistance: 19,800 – Bulls need to push above this for a breakout.
Support: 19,400 – A break below confirms a bearish continuation.
VIX (Volatility Index) – The Wildcard
Currently at 21.46, showing reduced panic ahead of FOMC.
A spike above 25 could mean markets are expecting increased downside risk.
Final Thoughts: Trade Smart, Stay Cautious
The market has been struggling for direction and FOMC will dictate the next major move.
We’ve seen capital rotation into China and Europe, suggesting investors are preparing for longer-term risks in the U.S. economy.
Volatility will increase post-FOMC, so be ready for large intraday swings.
What’s your take on today’s FOMC? Will Powell give the green light for a rally, or is more downside ahead? Drop your thoughts in the comments!
Disclosure:
The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading and investing in financial markets involve substantial risk, and it is important to conduct your own research and consult with a qualified financial professional before making any investment decisions. The author is not responsible for any financial losses or gains that may result from actions taken based on this article.
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