Euro edges higher above 1.1450 despite Fed hawkish stance

The Federal Reserve's recent shift to a more hawkish stance has set the Nasdaq 100 on a trajectory above its average levels, as policy makers signaled that further rate hikes may be on the horizon. The Federal Open Market Committee's decision to raise interest rates by a quarter point to 3.75 to 4 percent, the first increase since 2023, sent shockwaves through the market. Fed Chair Kevin Warsh reiterated concerns about persistent high inflation, hinting at additional rate hikes before the year's end.

Initially, the market responded negatively, with the S&P 500 ending lower on the day of the announcement. However, sentiment quickly turned positive after oil prices retreated back towards $102 and the 10-year Treasury yield eased to around 4.94 percent. The Nasdaq 100 rebounded, climbing 1.73 percent to close at 29,446.98, indicating that risk appetite remains intact despite the hawkish tone from the Fed.

Investors are weighing the immediate costs of higher rates against the potential benefits of containing inflation. While labor data remains resilient, with weekly jobless claims hitting a six-week low of 196,000, fears of a recession remain low. The week ahead will see a flurry of economic releases, including flash PMIs, the final second-quarter GDP reading, and the final Fed speeches. The August PCE report, which is the Fed's preferred inflation gauge, is scheduled for September 30.

The Nasdaq 100 is currently trading above its 200-day and 250-day simple moving averages, a sign of its long-term upward trend. However, the shorter-term averages are closely clustered, suggesting a potential for volatility. The index needs to break above the 29,180-29,280 moving-average cluster to defend its recent gains and reach the June record of 30,700.

On the upside, a close above 29,495 would be a key hurdle, followed by the 30,000 mark and the August peak near 30,200. A decisive break above these levels could put the June record back in reach. On the downside, a break below the 29,180-29,280 cluster could expose the index to a slide towards the 28,000 area, below which lies a significant gap to the 200-day average at 27,208.

Political events, such as President Trump's upcoming meeting with Chinese President Xi Jinping and the upcoming US midterm elections in November, could further influence market sentiment. A constructive tone from the summit or pledges of tariff relief could boost risk appetite, while a breakdown over Taiwan or export controls could weigh on the index. Investors are advised to remain patient and await a clear break in either direction before committing to a position, as range-bound trading is the near-term base case.