Every trader, even not very advanced, knows that there are two important events on the economic calendar that require special attention because they have a huge impact on the U.S. dollar and stock indices.
What is FED?
The first is the decisions of the Fed, or in other words the Federal Reserve – the central bank of the United States. The Federal Reserve System consists of a seven-member Board of Governors, whose term of office lasts 14 years, and 12 minor banks responsible for a particular area of the US. Formally, the third component of the Fed is the Open Market Operations Committee (FOMC), which includes members of the Board of Governors and five governors from the 12 banks, one of whom is the president of a New York bank and the other four are elected by rotation. Member banks, which are shareholders of the Fed’s 12 major banks, are also considered part of the Federal Reserve System. At its meetings, which are held every six weeks, the Federal Reserve decides on monetary policy, including setting interest rates, or in short, the cost of money.
Good payrolls mean higher interest rates?
The second no less important economic event is NFP. Non-farming payrolls (NFPs) determine the level of employment in service, manufacturing and construction companies, excluding the number of workers in agriculture, people employed in households and government and non-profit organizations. The data covers more than three-fourths of all U.S. employment, directly affecting changes in GDP. The results are published every first Friday of the month by the U.S. Department of Labor. The index illustrates not only the health of the economy, but also helps predict changes in global markets and is an indicator that the Fed looks at closely when making polmon decisions.
The level of inflation in the US (CPI)- Wednesday, August 10 2:30 pm
But there are other important indicators that have become particularly important recently, namely the CPI – the core inflation rate. The Fed, which is the guardian of appropriate monetary policy, has as its main goal to bring inflation down to a “healthy” level of 2-2.5% with as little damage to the labor market as possible. July payrolls turned out to be very good – 528,000 and exceeded expectations by 130,000. This Wednesday, August 10, at 2:30 p.m., we will learn the level of month-to-month and year-to-year inflation. It is expected to fall from 9.1% to 8.7% y/y.
If, with the aforementioned good payrolls results, inflation turns out to be higher than expected – this could be taken by the market as a signal for the Fed to tighten the polmon and raise interest rates more aggressively, and thus another wave of strengthening of the dollar against other currencies and a decline in US stock indices.
Technical analysis of the SP500 index
Putting aside the fundamentals, let’s look at the technical picture of the SP500 index. On the H4 chart, an upward correction is underway, the dashed line is the local trend line. The index has reached a strong supply zone.
The last H4 candle formed a bearish engulfing (a bearish outside bar). A downward divergence continues on the MACD oscillator. If the index breaks out of the formation downwards and overcomes the trend line, this could be a strong bearish signal, the value of the index could fall into the area of the first demand zone 4090, and if even this does not stop the decline the next one is at 3900.
Perhaps after Wednesday’s CPI report the situation will become clearer as to what the next move will be, because there is always the possibility if inflation turned out to be lower, breaking out of the top and moving towards the nearest supply zone 4266.
This week 08-12 August I am pleased to invite you to several online sessions. Below is the schedule of meetings:
The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions which you can attend from Monday to Friday.
More current analysis on the group : Trade with Dargo
In our Facebook group, which you can join anytime: https://www.facebook.com/groups/328412937935363/ you will find 5 simple strategies on which my trading is based. There, every day we post fresh analyses of currency pairs and commodities. You can also visit my channel where I post my trading ideas: https://t.me/TradewithDargo