Equities Outlook Ahead of The Fed Decision

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Global equities suffered on two major factors this week. First, US economic releases came in with better than expected results, raising expectations for a rate hike by the Federal Reserve in December’s meeting. Second, uncertainty toward US elections has been the main driver of the market these days, leading to a notable effect in equities as well.

The latest FBI letter to the congress about reopening  Hillary Clinton’s email investigation has increased the odds for the republican nominee Donald J Trump, and the markets are not pleased with such possibility. In today’s article, we will look at some of the global indices and the levels that traders should keep an eye on ahead of the Federal Reserve’s decision later tonight.

S&P500

The index peaked at its record high in Mid-August on a higher possibility of raising rates in December. This was a result of the latest FOMC statement back then and the rising uncertainty toward the elections. Yesterday, the index failed to remain above 2127, which represents a solid support after this year’s breakout in June. The index continued to decline all the way back to as low as 2097, trading below 2100 for the first time since June.

However, it still managed to close the day lower but well above the 2100 key support, which should be watched very carefully in the coming days. In the meantime, a break through that support would clear the way for further declines, probably back to 2000. This move needs a strong catalyst such as a hawkish statement by the Fed later tonight and/or an increase in chances for Donald J Trump. On the other hand, a dovish Fed seems to be more likely because it is trying to keep the market stable for as long as possible, at least until the day of the elections. If we do see a dovish Fed, S&P500 might find some support for a short period of time and might retest the 2127 resistance area.

S3

S2

S1

Pivot

R1

R2

R3

2115.65

2120.59

2123.37

2128.31

2131.09

2136.03

2138.81

DAX30

Dax30 Index has been stuck below the 10780 resistance area since July with no clear break above that resistance, forming what we call a triple top on the daily chart. This is considered a possible short opportunity because it implies that the bull run is out of steam.

Moreover, the index closed the day with a clear bearish engulfing candle, which increases the possibility for another leg lower in the coming hours/days. Yet, in today’s trading, traders needs to keep an eye on the daily trend line support which stands at 10500, where buyers are likely to appear. Otherwise, the possibility to test 10200 would increase significantly.

S3

S2 S1 Pivot R1 R2 R3
10583.58 10608.96 10636.98 10662.36 10690.38 10715.76

10743.78

Nikkei225

Although the bank decided to keep its policy unchanged, the index managed to advance right after the Bank of Japan’s decision yesterday. This is primarily because cutting the inflation forecast and changing the estimated time for the inflation target (2%) increased the estimates for further measures by the bank in the coming months. This is why the index added more than 0.5% of gains.

However, in today’s trading, the index followed global equities, declining back by more than 1.8%. Fears and uncertainty over the US elections are widespread and are the main reason behind such market movements. The index failed to stabilize above the 17250 support area, and continued to decline all the way back to as low as 17080. With such close, the possibility for another bull run has decreased significantly.

On the other hand, a test of 17000 has become more likely in the coming hours/days. Yet, this level should be watched very carefully as it also represents a daily trend line support. A break through that level would clear the way for another leg lower, probably toward the 16500 area.

S3

S2 S1 Pivot R1 R2 R3
17230.18 17284.91 17363.66 17418.39 17497.14 17551.87

17630.26

 

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