Last week was the calm before the storm for the financial markets, as we have a torrent of economic data in the coming days, including the Federal Open Market Committee meeting Tuesday and Wednesday and the March employment report Friday. Look for potentially volatile action in stocks, bonds, the U.S. dollar and commodities, and possible short-term trend changes.

The Fed makes its announcement about short-term interest rates at the conclusion of its two-day policy meeting Wednesday, and there is talk its easing cycle could end. Since September 2007, the Fed has lowered the Fed funds rate six times, to 2.25 percent. But concerns about inflation could change the Fed’s course of action in the coming months.

If the Fed starts hinting the next move in rates will be up, not down, the dollar should gain ground. After making a new low last against the euro early last week, the dollar rebounded by week’s end on this type of thinking. Europe has seen some weak economic data, and that may also put pressure on the European Central Bank to lower rates, although policymakers have resisted so far. Its key rate has stood at 4 percent since June 2007.

Most participants feel the Fed will pull the trigger one more time this week, but CBOT Fed funds futures are pricing in an 18 percent chance the Fed will keep rates steady at 2.25 percent.

S&P Futures

Looking at the S&P 500 futures, the market chose to focus on the positive, even though earnings were a mixed bag last week. As the stock market has rallied, we’ve seen the flight to quality slow in bonds.

Support and resistance and daily and weekly pivots will be important to watch if you are a short-term trader. The June S&P futures contract closed higher on Friday, extending last week’s rally. Momentum indicators, the stochastics and the Relative Strength Idex (RSI) are overbought but neutral. Nonetheless, the market could still go higher. If June extends this month's rally, the 50 percent retracement level of the October-March decline at 1425 is the next upside target, so swing traders should watch for resistance at 1425, while 1402 is key for day-traders. If the market stays above that level, look for bullish short-term trade setups, while below, look for bearish trades. Near-term resistance is at 1409. A move under the 20-day moving average at 1366 would mark a possible top.

U.S. Dollar Index

I’ve said for some time that the dollar is key to the direction of many markets, so let’s take a quick technical look at the U.S. Dollar Index futures contract. After hitting an all-time low early last week, the dollar rebounded to close higher Friday. Stochastics and the RSI have turned bullish, signaling that sideways to higher prices are possible near-term. If June extends last week’s rally, the 38 percent retracement level of the December-April decline at 73.65 is the next upside target. Closes below the 10-day moving average at 72.15 could signal that a short-term top has been posted. First resistance is at 73.25. Second resistance is at 73.65. First support is the 20-day moving average at 72.30. Second support is the 10-day moving average at 72.15.

Key Economic Reports This Week

Tuesday: U.S. Consumer Confidence

Wednesday: U.S. GDP Q1 Advance, Employment Cost Index, FOMC announcement

Thursday: U.S. Personal Income and Spending, PCE Core Inflation, ISM, Construction Spending

Friday: Employment Report, Factory Orders

Good luck and good trading!

Jeff Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com. Join Jeff for his monthly webinar, Friedman’s Futures Forecast, by visiting Lind-Waldock’s events page.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

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