After weeks of extreme volatility, equities are frozen today in expectance of tonight’s FOMC meeting
The market will be waiting today for the critical meeting of the FOMC.
The future actions of financial assets will depend on the measures taken today and the comments President Powell makes regarding his assessment of the economy's state.
The rapid recovery of the stock markets anticipating a return to normality will be one of the main elements that this central bank will consider when evaluating its decisions.
On the other hand, the latest employment data published in the United States, showing a remarkable recovery, will be another factor that will undoubtedly influence their deliberations.
For market optimism to continue, the Fed will need to ensure the continuity of its stimulus policy. They are not expected to announce increases in their asset purchase policy, but the current measures will need to be maintained over time for bull markets to continue.
In this sense, any statement regarding a time limit for the current Fed program could end the current euphoria.
Some Fed members have already hinted that the Fed has probably overreacted to the crisis by suggesting that it would be necessary to begin undoing liquidity measures. Still, it seems unlikely that the "hawkish" Fed sector will now dominate when making decisions.
Such a decision would mean a considerable setback in the stock markets as a consequence of strengthening of the Dollar as a safe-haven currency.
The risk could also be in a pessimistic assessment of the state of the economy that considers a slower recovery rate than what the markets anticipate.
This is also not very likely given that the Government's political pressure on the Fed has proven to be very effective in recent times and it is evident that the current administration of the United States is highly interested in showing that its policy of reopening activities to address the pandemic crisis has been a success.
That is why Powell's speech will probably be quite neutral in this regard.
The most generalized market consensus, although without total certainty, is that the Federal Reserve will be open to continue using its monetary policy tools at any time and for as long as necessary.
Also, to announce its intention to implement the yield curve control policy.
This is about preventing the yield of a particular maturity, which can be that of the five or 10-year bond, from exceeding a certain level. This is a way of facilitating the cost of financing and therefore, an expansive monetary policy measure that provides a stimulus for the economy.
If this were the case, the reaction of the stock markets would be positive, although some corrective movement of the last bullish momentum in a clear example of buying the rumor and selling the news cannot be ruled out at these levels.
EUR/USD would see its current uptrend strengthen and head towards targets close to 1.1500.
GOLD would need to overcome the $1720 zone first, and after this level, it would find its next objective at $1744, without ruling out an overcoming of this level that would open the way to the $1800 levels.
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