Futures slide as Fed minutes confirm a hawkish turn

​FTSE 100 hardly affected by Fed tightening

The FTSE 100 has hardly been impacted by yesterday’s publication of the Federal Open Market Committee (FOMC) minutes which confirmed the US Federal Reserve’s (Fed) hawkish stance and its aim of a rapid balance sheet unwind due to the index’s defensive make-up, with the likes of AstraZeneca trading at new all-time highs.

However, the daily chart of the FTSE 100 does display negative divergence on the daily RSI, which points to a probable consolidation taking place soon.

A slip through yesterday’s low at 7,534 would likely trigger a move to the 23 March high at 7,522, below which sits the 31 March low at 7,489. While above there, the bulls should remain in charge, however.

Below 7,489 meanders the 55-day simple moving average (SMA) at 7,438.

Were this week’s high at 7,619 to be exceeded, however, the January and mid-February highs at 7,633 to 7,634 would be targeted and also the February peak at 7,688.

DAX 40 drops towards the 38.2% Fibonacci retracement at 13,975

The DAX 40 has taken a hit following recent hawkish comments by Fed officials talking of a rapid balance sheet reduction, sending US bonds and stocks tumbling and dragging most world indices down with them.

The index has come close to the 38.2% Fibonacci retracement of its March rally at 13,975 around which it may be trying to stabilise today. Technically the bulls should retain the upper hand for now since the March rally can be subdivided into five Elliott waves and the decline from the late March high at 14,927 into three corrective A, B and C waves. This is normal price behaviour and should be followed by another five waves to the upside.

For such a bullish scenario to be confirmed, a rise above this week’s high at 14,605 needs to be seen, though. In case of further downside being witnessed, the 24 February low and 50% retracement at 13,795 to 13,680 may offer a potential support area ahead of the 15 March trough at 13,577.

Dow flirts with 55-day SMA ahead of support

The Dow Jones Industrials Average has declined over the last few days amid hawkish comments from US Fed officials, many of whom apparently would have preferred a 50 basis point increase in the Fed funds rate, instead of last month’s 25 basis points, minutes of the March meeting showed.

Concerning the balance sheet reduction, they agreed to monthly caps of around $60 billion for Treasury securities and $35 billion for mortgage-backed securities, phased in over a period of around three months. That is higher than $50 billion a month cut the Fed made back in 2017-2019.

So far, the Dow has slid to the 55-day simple moving average (SMA) at 34,317, to marginally above an important support zone at 34,181 to 33,979. It consists of the breached 2022 downtrend line, which going forward may act as a support line, as well as the 22 February to 3 March highs.

Further down the 11 March high at 33,698 may act as support. A bullish reversal and advance above the 200-day SMA at 35,027 and this week’s high at 35,105 is needed for the March uptrend to resume.