Market Recap

The Federal Reserve (Fed) has kept its benchmark interest rate unchanged at 5.25%-5.50% at its latest meeting, which has been fully priced by markets and should come as little surprise. In light of the absence of fresh economic projections at this meeting, the large triggers for market moves revolved around Fed Chair Jerome Powell’s words and the Fed statement.

In the Fed statement, the central bank acknowledged the strength in economic activity in the third quarter, but also newly recognised the tighter financial conditions, likely as a reference to the recent run-up in US longer-term Treasury yields. This has been in line with the significant shift in rhetoric among US policymakers over the past weeks, whereby the appetite for rate hikes has softened with the view that surging Treasury yields may have carry the work of tightening.

In the press conference, Fed Chair Jerome Powell guided that the risks of doing too much to bring down inflation versus doing too little are getting more balanced, reflecting an increasing shift in attention towards economic conditions and probably the need to assess the cumulative effect of tighter monetary policy for longer.

While he kept the door open for additional hike if inflation progress stalls, the stance has carried more ambiguity with emphasis on data-dependency, which fed market views that the Fed may already be at the end of its hiking cycle. The messaging for a prolonged pause ahead was retained with the usual pushback against rate cuts, but markets are likely accustomed to it given the upside move in longer-term Treasury yields since August this year.

US dollar struggles at resistance

The aftermath of the Fed meeting saw US 10-year Treasury yields retracing further from its key psychological 5% level to a two-week low, dragging the US dollar 0.3% lower overnight. Having traded within a tight range over the past month, some indecision remains in place, with stalling upside momentum reflected in the declining moving average convergence/divergence (MACD) on the daily chart.

A retest of the 106.80 level of resistance overnight was met with a bearish rejection, which could leave the 105.00 level on watch as immediate support on further downside. For now, the broader upward trend could remain intact, with the dollar still above its Ichimoku cloud support on the daily chart, alongside various moving averages (MA) (50-day, 100-day, 200-day). Greater conviction for a shift in trend to the downside may have to come from a breakdown of these key support lines.

Nasdaq 100 continues to bounce off channel support

The Nasdaq 100 has been the only major US index still trading above its 200-day MA. With the overnight dip in Treasury yields, the rate-sensitive Nasdaq has found its way higher by 1.6%, outperforming both the DJIA (+0.7%) and S&P 500 (+1.1%).

A falling channel pattern seems to be in place since July this year, with the index bouncing off the lower channel trendline support lately around the 14,200 level. A bullish crossover was displayed on daily MACD, while its relative strength index (RSI) is attempting to cross above its key 50 level. Further upside may leave a retest of the 15,100 level in sight next, where the upper channel trendline resistance stands alongside its Ichimoku cloud resistance on the daily chart.