FX.co ★ Markets expect Fed to reduce QE by 30 billion in December!

In previous articles the subject of a faster tapering of the US quantitative easing program has been repeatedly tackled. Many experts and market participants are now considering this issue. The fact is that any change in monetary policy is a potential impulse to the markets. It doesn't matter whether it is a promising impulse or a failed one. Anyway, markets will definitely react to such an event. Thus, as early as next week, buyers in the US stock market could be more realistic. First, the markets are extremely confident that the Fed will reduce the volume of asset purchases by at least $15 billion. Besides, it is a new hawkish factor. Secondly, the vast majority of the market participants think that this amount will be increased to $20 billion or even $30 billion. The Fed's decision will mostly depend on the strong inflation report which is released this Friday. If inflation is projected to jump to 7% in November, it will be a crisis situation. In that case, the Fed will definitely react. Accordingly, the stock market may start a new correction as early as next week. As the QE program is reduced and rates are raised, the number of such corrections should increase. Moreover, one of them may be the beginning of a new downtrend.

Besides, one more key technical factor should be considered. If the charts of the S&P500 and NASDAQ indexes are observed, a strong uptrend with minimum corrections is obvious. That is, the market has been almost constantly growing for over a year and a half! Therefore, in both cases it is possible to build upward channels, which will give a hint to expect a strong correction or a downtrend. The situation with the Dow Jones Index is slightly different. There, on the contrary, it is evident that the uptrend is weakening.

It should be taken into account that the market is currently rising due to reducing fears about the omicron variant. The other day, it was discovered that a new vaccine had been developed by GlaxoSmithKline and Medicago, which proved to be 71% effective against several variants. In particular, it was highly effective against the omicron variant. Notably, US Chief Epidemiologist Anthony Fauci admitted that Omicron symptoms were milder than had been expected. Therefore, the markets have really calmed down and the upward trend continues. However, the situation may change next week, therefore traders should expect another drop in the indices. As for tomorrow's inflation report, the reaction to it will be in line with the Fed's expected actions next week. If inflation rises considerably, it could contribute to a decline in the US stock market.