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  • Fed's Williams: - Inflation did not achieve the 2% target because the Fed acted too soon in the past - If the US defaults, the Fed will not be able to repair the economic harm
  • Fed's Williams: - I don't anticipate a significant increase in labor supply in Sept. and Oct. - I believe the job market will be quite robust in 12 months
  • Crude oil back to resistance - #CL2! chart on @TradingView
  • Heads Up:🇺🇸 Fed Brainard Speech due at 16:50 GMT (15min)
  • Markets reacted earlier today after 10-year U.S. Treasury yields popped resulting in a move away from the South African rand as the U.S. dollar firmed – reducing the attractiveness of the carry trade. Get your market update from @WVenketas here:
  • US Dollar Ascending Triangle: EUR/USD, GBP/USD, USD/JPY, USD/CAD
  • Heads Up:🇺🇸 Fed Williams Speech due at 16:00 GMT (15min)
  • The price of oil appears to be on track to test the yearly high ($76.98) after breaking out of the descending channel from earlier this year. Get your #crudeoil market update from @DavidJSong here:
  • I read this morning that Boston Fed President Eric Rosengren is retiring 9 months earlier than his term expiration due to health issues. Hope he recovers quickly. Could change the calculus for the Fed's policy position next year as he was an incoming hawkish voter. #Tapering
Dow Jones and FTSE 100 Forecasts for the Week Ahead

Dow Jones and FTSE 100 Forecasts for the Week Ahead

Justin McQueen, Strategist
Dow Jones Index Price Chart

Dow Jones, FTSE 100 Analysis and News

  • Peak in Volatility Does Not Mean Bottom in Equities
  • Dow Jones | Chinese GDP to See a Sharp Deceleration, Risk Rally to Fade?
  • FTSE 100 | Quiet Start But Risks Remain Lower
Indicies Performance Chart

Source: DailyFX

Risk Rally Persists For Now

A strong week for US equities with double-digit gains across the board. While economic data signals a severe economic shock with the latest jobless claims data confirming that 18 million jobs have been lost in 3-weeks (Figure 1). The fact that new coronavirus cases and fatalities have been leveling off slightly, alongside the additional stimulus help from the Federal Reserve has somewhat calmed investor angst for now.

Figure 1. Labour Market Deteriorates Significantly

US Weekly Jobless Claims 18 million record 3 weeks

Peak in Volatility Does Not Mean Bottom in Equities

The rebound in equities has coincided with the pullback in the VIX. However, while the VIX has pulled off its recent highs, the index is elevated nonetheless and given that downside risks remain with regard to an uptick in coronavirus cases or an extension of lockdown measures, volatility will likely persist. Alongside this, much like in the global financial crisis, the peak in the VIX did not mark the bottom for equities, therefore while the VIX may continue to pullback, so to can US equities as highlighted in Figure 2.

Figure 2. VIX Peak Does Not Coincide with Market Bottom

Vix and S&P 500

Dow Jones | Chinese GDP to See a Sharp Deceleration, Risk Rally to Fade?

As we look to next week, hard data in the form of Chinese GDP will provide an indicator as to the impact of coronavirus has had on the economy. Unsurprisingly, expectations are for a sharp deceleration. While over in Stateside, investors will begin to weigh upcoming financial reports from US companies and as my colleague, Peter Hanks states, expect an earnings season like no other. On the technical front, the resistance is situated at the 50% Fibonacci retracement, where failure to break above may see the recent risk rally begin to unwind.

Dow Jones Price Chart: Weekly Time Frame

Dow Jones Weekly Chart

Source: IG Charts

FTSE 100 | Quiet Start But Risks Remain Lower

A holiday-shortened week will see the FTSE 100 get off to a relatively slow start. With little scheduled on the UK economic calendar the index will likely take its cue from the macro backdrop. UK lockdown measures are to be extended and as such, this keeps risks tilted to the downside for the index. As such, a break below 5700 opens to the doors for a move towards 5500.

FTSE 100 Price Chart: Weekly Timeframe

FTSE 100 Price Chart

Source: IG Charts


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--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.