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Wall Street Waits: Fed Meeting Next Week to Set Market Direction

INVESTINGWall Street Waits: Fed Meeting Next Week to Set Market Direction

After Tuesday’s inflation data in the US, we are now past all the primary publications that may have any influence on the Federal Reserve’s decision next week. Today, we will still see retail sales and producer price dynamics. They can certainly cause more volatility, especially if they are weaker than expected, confirming a trend from the past few weeks. However, I do not think their results will alter the FOMC’s approach in any way.

Until the FOMC’s decision next week, not much should happen in the euro-dollar market. The Federal Reserve meeting promises to be interesting as, in addition to the interest rate decision itself (it is expected that the current level will be maintained), we will receive an update of the “dot plot” chart and new macro projections concerning inflation, economic growth and unemployment. The market will have plenty to interpret. Until then, I do not expect any major breakthroughs in either the FX market or the stock exchange index market.

Optimism is still dominating the markets. Wall Street did not react too strongly to the slightly higher inflation readings on Tuesday. The ‘fear index’ still shows very low levels, so there is no warning signal. Today’s PPI data and retail sales should not cause upheaval in the stock index charts. The start of a technical correction, which will happen sooner or later, should be initiated by a more significant event, set to occur next Wednesday.

Falls in the market could be initiated by a clear change in the FOMC members’ median expectations concerning the future path of interest rates. The December result pointed to three cuts totaling 75 basis points. If the new dot plot chart suggests that we will see fewer reductions and interest rates will be higher in the coming years than previously anticipated, the market may react with falls as this would be a clearly hawkish turn in the US central bank’s stance.

From yesterday’s European data, the industrial production, which fell by 3.2% month-on-month in January, is worth noting. The decline was stronger than forecasts. In the year-on-year terms, we also saw a drop of 6.7%. The weakness of the industry can be partly attributed to disruptions in the supply chain after tensions in the Middle East increased.

Following the publication, the euro began to gain against the dollar. The main currency pair’s exchange rate rose from 1.0920 to 1.0960, resulting in a “breakout” of quotations from a potential short-term “flag” formation. The gains dominate and should be maintained at least until the middle of next week.

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