Market volumes and volatility have decreased over the past session as we enter a crucial period in time with regards to the Fed’s next policy moves. Later today should give us our first clues as the Fed minutes are released, the general consensus appears to be that asset purchases will begin to be tapered in September. Thus far, with the exception of Precious metals and the dollar, asset classes are pricing in the probability of such, with both bonds and stocks lower.

From a technical perspective, we highlighted last week that 1675 being breached would lead to a test of lower levels, in the absence of any tapering talk that level should be closely watched, a significant break above that level would maintain the bullish bias of the market. If the Fed confirms it’s intention to begin tapering a test of the 1625-1632 region would be a given, with lower levels of support likely to come into play. One interesting point of note over the past week or so is comments from President Obama, emphasizing on the need to avoid “artificial bubbles”, this alone coupled comments from a number of the Fed board members would reinforce the likelihood of tapering, and with such in mind the short term risk for equities looks to remain on the downside.

Philip Ball | Sales and Trading