S&P 500 – QE Taper Fears/NFP To Provide Breakout Spark

Hourly Chart


Fed uncertainty sends US stocks down for the 5th consecutive day, with S&P 500 losing 0.43%. That is what financial news headlines would want you to believe. Previously we’ve discussed at length how fear of Fed taper may not be the actual instigator of current decline streak as price reactions to news do not fit the mold.  However, just like the boy who cried wolf did encounter a wolf in the end, it seems that QE Taper fears may actually be the actual be real this time round.

Yesterday was yet another good day for the US economic recovery narrative. Q3 GDP came in at 3.6% vs an expected 3.1% and 2.8% previous, while Initial Jobless Claims and Continuing Claims both came in lesser than expected. We even have US Factory Orders which was released later and similarly beat expectations. Unfortunately, we did not see any ounce of bullish response from the news releases, and prices actually traded sharply lower on the get go when the GDP numbers were released. This is different from previous days, where market actually reacted bullishly towards positive economic news initially (for as long as 1-2 hours even) before technical bears pulled prices lower. In current case, there is no bullish joy to speak of, suggesting that QE Taper fears headlines that you read today are right on the mark.

Nonetheless, it is heartening to see technical influence remaining strong. Price action yesterday continues to respect the descending Channel Bottom resistance and the rising trendline (Channel Top of rising channel on the Weekly Chart). This suggest that we could actually see strong breakout on either side soon as the 2 trendlines converge. With US Non-Farm Payroll scheduled to be released today, the likelihood of a breakout happening increases especially since QE Taper fears is just back into play. With technical influence continuing to be strong, the follow-through action of break in either direction will be great, but bearish movement (most likely arising from a better than expected NFP) may have longer legs to run since the underlying sentiment remains bearish. Bulls on the other hand will still need to content with resistance from the descending Channel Top and perhaps even from the 1,795 soft ceiling.

As a side note, as both ADP Employment Numbers and Initial/Continuing Claims figures have beaten analysts estimates, the market will naturally have an expectation that NFP print will be stronger than the 185K consensus estimate (which is definitely outdated now). Hence, NFP print will definitely need to come out stronger than 185K in order to illicit further QE Taper fears, while a close to expectation print may actually be bullish for S&P 500 as speculators may have overplayed the QE Taper fears yesterday. How much stronger? It is difficult to say as market is fickle, but if NFP comes in higher than October’s 204K, the likelihood of additional QE Taper Fears compounding will be higher.

More Links:
GBP/USD – Pound Drops Sharply As US Numbers Sparkle
AUD/USD – Aussie Tests 90 Line as US Data Sparkles
EUR/USD – Volatility Ahead of ECB Rate Decision

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu