21.09.202107:58 Forex Analysis & Reviews: US stock market drops ahead of FOMC meeting. USD gains in value.

S&P500

A drop in the US stock indices accelerated ahead of the FOMC meeting. At the same time, the US dollar is gaining in value.

The US stock indices closed the previous week with a significant drop. The Dow Jones Industrial Average declined by 0.5%, NASDAQ lost 0.9%, and S&P500 slid by 0.9%.

At the same time, Asian stock indices advanced on Monday. Thus, Japan's index added 0.6%, whereas China's index rose by 1%.

Future inflation situation in the US and the EU is the main issue for market participants, especially ahead of the FOMC meeting that is scheduled on Wednesday. Thus, in Germany, inflation advanced by 1.5% in August compared to July. Economists had expected a smaller rise of 0.8%.

Commodity market. On Monday, oil prices showed a gradual decline. Brent crude was trading at $74.80 per barrel compared to $76 per barrel last week. In Europe, natural gas showed the best performance. Last week, it jumped to $1,000 per thousand cubic meters. In the US, it also rose, exceeding its 5-year high. Now, natural gas costs $5 per contract that is 70% higher than in the period from autumn 2020 to winter 2021. Analysts suppose that gas prices were boosted by low gas inventories in the EU ahead of winter. Notably, high gas prices may lead to bigger exports from the US to Europe, thus decreasing Gazprom share in the market.

Global epidemiological situation: yesterday, the number of new virus cases in the world declined to 350 thousand, whereas in the US, it dropped to 33 thousand. As a rule, at the weekend, the number of new cases falls.

S&P500 is trading at 4,433, the range is 4,390–4,460. On Monday, S&P500 continued falling ahead of the FOMC meeting. The index lost 0.8% and dropped below the 50-day average. The index closed with losses for the first time since July. At the same time, market participants expect that the US Fed will change its monetary policy to a more neutral one. Now, the Fed is buying $120 billion a month in Treasury securities and mortgage-backed bonds. It is expected to taper its asset-purchasing program to 0 by the middle of 2022. In general, the US market situation is quite calm.

USDX is trading at 93.30, the range is 93.00–93.50. The US dollar index showed a significant jump to 93.20 from 92.80 at the end of the previous week. Now, the US dollar is hovering at its 3-week highs. It is likely to go on rising, in particular, against the euro. The growth is supported by the expectations of monetary policy tightening.

USD/CAD is trading at 1.2810, the range is 1.2780–1.2850. The currency pair is increasing along with the US dollar, ignoring high prices of gas and oil.

Conclusion: The US stock market has slid by 3% from its yearly peak. It is an insignificant decline compared to the previous growth. That is why the downward correction may continue. Investors should not open new buy positions, until there is proof that the correction is over.