S&P 500 holds back on rate rise risk

July 27, 2016

It was positive news out for the US economy today as data was stronger than expected with CB consumer confidence coming in strong at 97.3 (96.0 exp), however this was down on the previous months reading of 98.0. New home sales m/m also proved to be positive as the summer months have certainly helped boost demand in the US economy with the reading coming in at 592K (560K exp). This points to positive signs for the most part with the FED and in turn the markets have reacted somewhat cautiously when it comes to the equity side of things, as right now a positive result, while good for the economy, boosts the chance of a rate rise and liquidity draining out of equities and chasing returns elsewhere.

Nowhere is this more apparent than on the S&P 500 which today saw a minor boost to yet again touch on resistance at 2167, which so far has acted as a hard ceiling for any movements higher on the charts. Right now it seems that the market is playing of news from the FED and this is likely to remain the case for some time. For me the future still looks likely that we will have a push to increase rate rises in the near term. I would expect that given the data we have seen today that the US consumer is fairly positive and this will be a main driver for the FED. The next level down is likely to be support at 2119 and with the long candle wicks we could finally see some momentum swing towards this key level. The 50 day moving average is also creeping up and we could see it play a dynamic role acting as support for the marketplace.

The New Zealand dollar benefited of global risk sentiment today, as the market rushed to make the most of a positive US economy by looking for fixed returns elsewhere, and this came in the form of the NZD before the impending rate cut lined up for August. We also saw earlier trade balance data which came in a little worse than expectations at 127M (138M exp), but at the same time we also saw a stronger reading for exports which in turn gave markets a mixed message on the state of the NZ economy. Regardless of the result the expectation is still that in August the RBNZ will indeed have to act and will likely cut rates.

The jump higher was met with resistance by the 50 day moving average and as bulls looked to take profit on the opportunistic move from the NDZUSD. There is also the psychological level around the 70 cent mark and I anticipate that this will stay for some time and is likely to hold back further movements on the charts. In the long run support at 0.6916 is likely to be the target, but in the short term traders are playing of market risk sentiment.

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