US indexes fall as Big Tech tumbles

However, it only lasted a few hours, before the index ended 0.1% lower. From a technical perspective, it was ripe for a pullback, given that its 14-day relative strength index had breached the 70 mark which signals overbought levels.

Monday’s drop was far more noticeable in US tech stocks, with benchmark indexes dragged lower by tech megacaps:

  • Microsoft: -2.09%
  • Alphabet: -2.56%
  • Apple: -2.58%
  • Amazon: -3.07%
  • Facebook: -4.11%
  • Tesla: -6.44%

Note that these six stocks listed above account for nearly a quarter (23.3%) of the S&P 500’s total market cap, while accounting for more than half (56%) of the Nasdaq 100. In other words, the performances of these individual stocks, due to their sheer size, has a major impact on how the broader index performs.

Given the higher concentration of tech stocks on the Nasdaq 100, it was yesterday’s biggest loser of the three main benchmark US indexes. The Nasdaq 100 fell by 2.63% to post its biggest single-day loss since 18 March 2021.

The futures contract for the Nasdaq 100 has now broken below its 100-day simple moving average (SMA). Tech aficionados would point to the fact that, since the market rout in March 2020, this index’s foray below its 100-day SMA has been fleeting. After that single day loss of 3.13% on 18 March 2021, the Nasdaq 100 went on to advance by almost 10% and post a new record high a month later (16 April).

Some traders are raising their bearish bets on the Nasdaq 100, while pulling funds out of the sector. In short, tech stocks appear likelier to experience larger bouts of volatility compared to other sectors.

“Over the immediate term, with momentum now pointing firmly south, there’s likely to be more near-term declines for the Nasdaq 100 before the dust settles.”

Why are tech stocks falling hard?

This is likely due to two major concerns:

  1. Investors now deem the valuations of tech stocks to be overextended and are finding fewer catalysts that can spur these stocks higher.
    The Nasdaq 100 currently has a PE ratio of 35.63. That’s in contrast to the S&P 500’s PE ratio of 30, and the sub-27 ratio for the Dow. The higher the PE ratio, the more “expensive” the stock is deemed to be.
    Hence, with concerns that these valuations are no longer justifiable, in light of the anticipated reopening of the US economy, many investors have instead engaged in the “reflation trade” at the expense of tech stocks which had a remarkable 2020.
  2. Markets are also growing more concerned about the threat of faster US inflation.
    This is evident in the breakeven rates for 10-year US Treasuries, which hit a fresh 8-year peak on Monday before moderating slightly since.
    Despite the sluggish April US nonfarm payrolls figures released this past Friday, some investors are holding fast to the notion that the trillions of dollars in stimulus spent by the government and the central bank is bound to show up in the inflation data. Such an inflation overshoot might force the Fed to pull back its support for financial markets sooner rather than later. And when policymakers start signalling for sure that they’re ready to pare back their bond purchases, there is likely to be an almighty reaction in US stocks, especially sectors that are showing signs of too much froth like tech.

The jury is still out about the US inflation outlook, and what that might mean for the Fed’s timeline before unwinding its stimulus measures. While such uncertainty may well trigger further bouts of volatility in equities, steadier hands may find more gains to be had from US stocks in the interim.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Technical Outlook: GBPUSD Surges Above 1.41

The falling likelihood of a second Scottish independence referendum in the near term following last week’s election boosted buying sentiment towards Sterling. A broadly weaker dollar also played a role in propelling the GBPUSD to its highest level since February 25th.

With Covid-19 cases falling, two-thirds of UK adults receiving a first dose of the vaccine and the next phase of lockdown easing scheduled on May 17th, the economic outlook for the post-pandemic UK remains bright. This may translate into a stronger Pound over the next few weeks.

Can the GBPUSD push higher?

Looking at the daily charts, the technicals are heavily bullish. The GBPUSD has jumped over 150 pips today and a total of 350+ pips since the start of May! Prices are trading comfortably above the 20-day and 50-day Simple Moving Average while the MACD trades above zero. A solid daily close above 1.4100 could provide a platform for bulls to springboard prices towards 1.4200 and the 2021 high of 1.4240.

One thing to keep in mind is that the Relative Strength Index (RSI) is very close to hitting 70 which suggests that the GBPUSD is overbought and may be primed for a technical pullback. Should prices fail to keep above 1.4100, a decline back towards 1.4000 and lower could be on the cards.

Zooming out on the weekly charts, there have been consistently higher highs and higher lows. Prices are trading above the 20-week Simple Moving Average while the MACD trades above zero. A strong weekly close above the 1.4000 resistance could encourage an incline towards 1.4240 which is the 2021 high. A move beyond this point could see the GBPUSD test 1.4350 – a level not seen April 2018.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk Assets Resume Their Rise As Dollar Suffers Following Payrolls Miss

Over the past several weeks, a lot of economic data has surprised to the upside, including figures on consumer spending, business and consumer confidence, the housing market and manufacturing and services activity. That had led some economists to anticipate far more than a one million jobs to have been added. Indeed, if we exclude March 2020, this was the worst negative surprise in 24 years since the survey started.

While the trajectory continues to show improvement in the labour market, the US may not return to full employment by next year if the jobs recovery starts to show fragility. For investors, this is not necessarily bad news. In fact, it should be seen as positive for risk assets and negative for the US currency.

The US 10-year breakeven rate serves as an indication of the markets’ inflation expectations over the 10- year horizon and this reached a new eight year high of 2.49%. The latest spike in inflation expectations is now driven by two factors, the big surge in commodity prices and expectations of extended easy monetary policy. The Fed is now set to delay tapering of its asset purchases until the end of the year instead of the third quarter and that is why the S&P 500 and Dow Jones Industrial Average closed at new record highs despite the gloomy jobs report. The next big data point will be released on Wednesday with US inflation expected to have soared 3.6% compared to a year ago. However, this is due to base effects which means investors should monitor monthly changes instead to see if there are any signs of prices moving sharply higher.

When looking at base metals, prices are running hot with iron ore and copper continuing to record new highs. This should further benefit stocks in the mining industry, but also raises some doubts over the Federal Reserve statements which say inflation will be “transitory”.

Asian stocks rose today on expectations of lower rates for longer with European and US indices are also set for a positive start to the week. Meanwhile, the dollar continues to feel the pain from Friday’s disappointing jobs report with the dollar index (DXY) only 0.3% higher from where it started the year, having retreated 3.45% from the March peak.

Given the current environment, expect the selling of the DXY to resume with the first big test around 89.20. A break below this level will send the greenback to a three-year low. Unless we see a sharp correction in equities or a new surge in US bond yields, expect the dollar to remain under considerable pressure.

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Key Events This Week: Inflation All The Rage?

The April nonfarm payrolls came in at an utterly disappointing 266,000 instead of the one million figure that was expected. Yet US stocks merely shrugged off the jaw-dropping figures to climb higher, with both the S&P 500 and the Dow Jones Industrial Average posting their respective record highs on Friday.

Even Big Tech got in on the act, with the Nasdaq 100 climbing for a second straight day to move to within 2.3% of its highest ever closing price that was set on 16 April.

The futures contracts for all three major US stock indices (S&P 500, Dow, Nasdaq 100) are pushing higher at the time of writing.

“US stocks have demonstrated tremendous resilience by taking everything in its stride, supported by a better-than-expected US vaccination rollout and the Fed’s ultra-accommodative stance.,

Let’s see how they fare with this week’s key events:

Monday, May 10

  • Chicago Fed President Charles Evans speech

Tuesday, May 11

  • Fed speak: Fed Governor Lael Brainard, San Francisco Fed President Mary Daly,
  • New York Fed President John Williams
  • Germany ZEW survey expectations
  • OPEC monthly market report

Wednesday, May 12

  • UK GDP, industrial production
  • BOE Governor Andrew Bailey speech
  • Fed Vice Chair Richard Clarida speech
  • US inflation

Thursday, May 13

  • St. Louis Fed President James Bullard speech
  • US weekly jobless claims
  • Alibaba earnings (before US market opens)
  • Disney, Coinbase earnings (after US market closes)

Friday, May 14

  • Dallas Fed President Robert Kaplan speech
  • US consumer sentiment, industrial production, retail sales

Can Gold reach its 200-day SMA?

When the shocking US jobs report was released, investors fled to safe havens.

The buying of US Treasuries sent its yields lower. The strong correlation between Treasury yields and spot gold once again on full display last week, especially when the shocking jobs figures were released. 10-year yields screeched towards the 1.5% mark before erasing its declines, not before elevating gold prices onto a higher plain.

“In order for gold prices to climb even higher, investors must have stronger conviction about the precious metal’s traditional role as a hedge against inflation. Of course, falling Treasury yields and a weaker dollar would also go a long way for bullion bulls.”

And that brings us to the April US consumer price index due Wednesday.

Although this set of data is expected to be high due to the low base effect, given the abnormally low CPI figures throughout Q2 2020 due to the lockdown measures across the United States, the inflation outlook is very much central to global financial markets. Still, concerns about inflation making a roaring comeback could be taken down a notch after last Friday’s severely disappointing US jobs report.

“This could mean that gold bulls may have to depend on other factors, namely another decline in US yields, a softer dollar, or bouts of risk-off sentiment.”

Any of these events could help move bullion closer towards testing its 200-day simple moving average as a resistance level over the course of this week. However, with spot gold’s 14-day relative strength index now flirting with overbought levels, should prices lurch higher, that may trigger a pullback to clear some of the eventual froth.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Week In Review: Dollar Crumbles, Gold Glitters, NFP Massively Disappoints

After a challenging month in April, we questioned whether the dollar could recover? Given its negative performance against G10 currencies this week, bulls certainly have a very steep hill to climb to reclaim back some control.

In our technical outlook, yen crosses were under the spotlight. Military tensions between China and Taiwan sparked risk aversion and boosted appetite for safe-haven currencies including the Japanese Yen.

As discussed on Tuesday, the USDJPY was blocked below 109.686. The repeated rejection around the 109.30 levels created a platform for bears to drag prices lower. A broadly weaker dollar on Friday following the dismal US jobs report sent the USDJPY tumbling towards 108.30.

Our stock of the week was Uber which released its Q1 results after US markets closed on Wednesday. The company reported mixed results for the first quarter of 2021. However, the net loss for the quarter was $108 million which was an incredible improvement from the $968 million it lost in Q4.

Mid-week global equity bulls made an appearance, shaking off the caution from China-Taiwan tensions and comments from Treasury Secretary Yellen. However, a late tech selloff sent the Nasdaq lower for the fourth consecutive session.

The Euro caught our attention after forming a death cross technical chart pattern. But this setup was trashed by a broadly weaker dollar on Friday. The EURUSD is trading around 1.2160 as of writing. A solid weekly close above 1.2150 could signal further upside in the week ahead.

On Thursday, the Bank of England was under the spotlight. Although the central bank left interest rates unchanged as widely expected, it reduced the pace of weekly asset purchases to £3.4 billion from the previous rate of £4.4 billion. While the BoE expressed optimism over the UK economy, hawks were kept at bay.

Looking at the technical picture, the GBPUSD remains in a wide range on the daily charts. A breakout could be on the horizon thanks to a weaker Dollar. Should bulls conquer the 1.4000 resistance, the next key level of interest will be around 1.4110.

It was all about the shocking payroll data on Friday. The US economy added 266,000 jobs in April, massively missing expectations for 990,000. March’s figure was also revised down to 770,000 from 916,000. In regards to the unemployment rate, this rose to 6.1% while average hourly earnings m/m rose 0.7%.

The key question is whether this bad news is good news for markets? Treasury Yields spiked as low as 1.464% before rebounding while the S&P 500 and Dow Jones rallied to fresh record highs.

In the commodity space, Gold exploded higher following the disappointing US jobs report. Prices punched above $1840 thanks to a tumbling Dollar and falling treasury yields.

Looking at the technical picture, the precious metal is experiencing a pullback from the daily high but is still on route to concluding the week over 3% higher. Bulls remain in the driving seat as long as $1800 proves to be reliable support.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

US Stocks To Climb On Jobs Optimism

The S&P 500 is now just 0.23% away from its record high, while the Dow Jones Industrial Average posted a fresh record high. The Nasdaq 100 ended a 4-day losing streak, though remains about 3% lower from its highest ever closing price recorded on 16 April.

“At the time of writing, the futures contracts are pointing to further gains for US and European stocks before the weekend.”

Nonfarm payrolls to validate risk-on sentiment

Yesterday, the US recorded its first sub-500k weekly jobless claims since the pandemic forced lockdowns across the country. With more Americans re-entering the workforce, that would help bring the US economy further along into the post-pandemic era.

“Such optimism has to be endorsed by today’s US nonfarm payrolls data, with markets forecasting that one million jobs were added in April.”

While anything above March’s print of 916,000 would still demonstrate an improvement in the US jobs market, a payrolls tally that’s higher than the-expected one million could well trigger another wave of risk-taking activities across global markets.

Investors will also be monitoring how US consumer price pressures would react to more slack being taken out of the jobs market. More importantly, markets want to know whether such inflation would persist once the low base effect fades, and force the Fed’s hands into adjusting its policy settings earlier than what these central bankers have conveyed to the markets so far.

“The Fed’s commitment to its ultra-accommodative stance is arguably the biggest theme in play at the moment, despite the concerted attempts by officials to play down any talk about a premature paring of its stimulus measures.”

Gold breaches psychologically-important mark

Spot gold has broken above the $1800 level for the first time since February, and is set to register its biggest weekly gain of the year so far. Gold’s climb has been aided by stabilizing Treasury yields, which in turn has led to a US dollar that’s been moderating since April, noting the inverse relationship between gold and the greenback.

The precious metal is now up by almost 7.8% over the past two months, since it registered its year-to-date low on 8 March, and has now broken above its 100-day simple moving average.

Real yields on 10-year Treasuries remain firmly in negative territory, while its breakeven rates are now around their highest since 2013. Such conditions have implored gold prices to pare its year-to-date losses, considering its trait as a zero-yielding asset.

“In order for gold to push higher from current levels, spot prices must carve out an extended presence above $1800 in order to encourage more bulls to get off the sidelines, especially those who cling to the belief that the precious metal is a worthy hedge against faster inflation.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Sterling Whipsaws On BoE Rate Decision

As widely expected, the central bank voted unanimously to leave interest rates unchanged at their current record low of 0.1%.

Falling Covid-19 cases, the rapid progress in vaccine rollouts, easing lockdown restrictions, and improving domestic conditions have brightened the UK’s economic outlook. Reflecting these positive developments, GDP is forecast to expand sharply in the second quarter of Q2. Annual economic growth for 2021 is projected to be around 7.25% – the strongest seen since the second world war. In 2022, the bank sees GDP at 5.75% versus the previous estimate of 7.25%.

In regards to inflation, this is expected to reach 2.5% by the end of 2021 before dropping back to 2% in the medium term.

Overall, the Bank of England sounded optimistic over the UK’s post-pandemic economic recovery. However, it felt like the bank took a leaf out of the Federal Reserve’s book in regards to messaging and cooling expectations around tightening monetary policy. Bank of England Governor, Andrew Bailey stated during the press conference that the decision to reduce gilt purchases was not tapering.

What does this mean for the Pound?

After the initial whipsaw, the British Pound later weakened against the Dollar and other G10 currencies.

The weakness could be based around the Bank of England not sounding as hawkish as expected and BoE Governor Bailey’s comments during the press conference. Nevertheless, Pound bulls remain supported by the positive developments in the United Kingdom. Looking at the currency’s performance since the start of 2021, it has appreciated against most of its peers in the G10 space excluding the Canadian Dollar and Norwegian Krone.

GBPUSD trapped within 200 pip range

The currency pair remains trapped in a wide 200 pip range on the daily charts.

Support can be found at 1.3800 and resistance at 1.4000. Given how prices are hovering above the 20-day and 50-day Simple Moving Average, this could provide a platform for bulls to attack with the first level of interest back at 1.4000. Given how the GBPUSD has been trapped within this current range since mid-April, it may take a fundamental catalyst to break out if the technicals fail.

Should prices secure a solid close above 1.4000, this could open a path towards 1.4110. Alternatively, a move below 1.3800 may trigger a decline towards 1.3715.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Investors Awaiting US Jobs Report Before Making The Next Move

But the Dow Jones Industrial Average managed to advance to a new record high with the support of cyclical industries. European markets are also set for a subdued open following a mixed Asia session which saw Japanese stocks outperforming on their return from holiday, while shares in China and Australia dropped after Beijing announced a suspension of regular economic dialogue with Canberra.

US bond yields are back under pressure with 10-year yields falling for a fifth straight day, preventing the dollar from further rallies. Meanwhile in commodities, Brent is still attempting to break above $70 a barrel as crude stockpiles in the US fell more sharply than anticipated.

Key trends for equity investors haven’t changed a lot so far this year. Value and cyclical stocks remain the main beneficiaries from the reopening of economies, while growth and tech firms with overstretched valuations continue to suffer. In an expensive equity market and with anticipation of higher interest rates, value tends to benefit the most and investors are sticking to this narrative.

Surprisingly though, the bond market is still doing holding up despite all sorts of talk about an overheating economy and soaring inflation expectations. The 10-year breakeven inflation rate which measures expected inflation over the next 10 years reached 2.47% on Wednesday, the highest in eight years. Meanwhile five year breakeven rates approached 2.7%, the highest in a decade.

If Friday’s US jobs report comes out strong enough to force the Federal Reserve to announce tapering of asset purchases later this year, we could see the upward trajectory in long term bond yields resume after its latest pause. However, looking at recent economic data releases, it seems the economy is failing to surprise to the upside.

The employment component of the US PMI Manufacturing and Services indices both came in slightly above market expectations this week. Private payrolls rose by 742,000 jobs in April posting its biggest gain in seven months but still fell short of the 800,000 forecast. Today’s initial jobless claims will also provide more information about the recovery in the labour market. But it is Friday’s non-farm payrolls report that will determine how bond yields could move and possibly take the dollar in the same direction.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EURUSD Forms Death Cross

EURUSD has formed what’s known as a “death cross”, whereby its 50-day simple moving average has crossed below its 200-day counterpart.

“Such a technical event typically heralds further declines.”

The currency pair is now testing the psychological 1.20 mark as a support level, failing which then the early-February low of around 1.1955 could be the next area of interest for bears.

May is typically a bad month for the euro. Over the past 10 years, the euro has averaged a 1.63% monthly decline versus the US dollar in May alone.

And in living up to such a track record, indeed the euro’s fortunes have been already dismal so far this month, with the shared currency weakening against most of its G10 peers so far this week.

Fundamentally-driven traders and investors will be eyeing these economic data releases due before the weekend:

  • Thursday, 6 May – Eurozone March retail sales data, Germany’s March factory orders
  • Friday, 7 May – Germany’s industrial production and external trade

“Still, better-than-expected readings of the Eurozone economy may only have a limited impact on the euro’s performance.”

Despite the rosier economic outlook for the EU, the US dollars appears to have a bigger say on EURUSD, with the greenback supported by stabilising US Treasury yields.

As for ECB President Christine Lagarde, who’s due to make a speech later today, she and her colleagues at the European Central Bank may not mind this softer euro. After all, a weaker currency would help buffer its economic recovery. A weaker currency can make Europe’s exports become more competitive on the global stage, while staving off inflationary pressures.

EURGBP climb loses steam

As for EURGBP, the currency pair’s attempts to break out of its downtrend has been capped by the 0.872 region, with the currency pair now finding support around its 50-SMA for the time being.

The Bank of England’s decision today is also in keen focus, although the central bank is unlikely to adjust its policy setting. Yet, the forward-looking investor will be monitoring the BOE’s economic outlook, considering the stellar progress the UK has enjoyed with its vaccination programme. The inoculation campaign’s early successes have already prompted UK Prime Minister Boris Johnson to expect the end of social-distancing measures by June 21. Such a move would be a massive boost to economic activity in the UK.

Such optimism may also encourage a hawkish tone out of BOE officials who may hint at an eventual paring back of its bond purchases today.

“Such hints may spur further gains in the Pound, potentially pushing EURGBP below its 50-SMA and on a path towards its mid-March lows of around 0.85377.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Stock Markets Rebound, Dollar On Standby

European markets flashed green thanks to encouraging data from Europe while tech shares led a rebound on Wallstreet.

Treasury Secretary Janet Yellen rattled financial markets yesterday by suggesting that interest rates may need to rise to prevent the US economy from overheating. The negative reaction witnessed across the equity space laid bare the market sensitivity to inflation expectations. Interestingly, Yellen later clarified that she was not forecasting interest rate hikes – which came as a breath of fresh air to the Technology sector. The Nasdaq 100 has gained over 0.6% this afternoon, while the S%P 500 and Dow Jones have both gained almost 0.5%.

Looking at the technical charts, the Nasdaq turned bearish on the daily timeframe after securing a solid daily close below the 13750 support. If this level transforms into a dynamic resistance, the index could decline towards 13350 – a level just above the 50-day Simple Moving Average. Alternatively, a sharp rebound back above 13750 is likely to trigger a move towards the 14000 regions.

Dollar on standby ahead of NFP

The Dollar slightly weakened on Wednesday afternoon after the U.S. private payroll data for April missed market expectations.

According to the data released by the ADP Research Institute, the USD ADP employment change came in at 742,000 last month. This was below the 850,000 market expectations but still, the highest growth seen in eight months.

Given how the main risk event and potential market shaker remains the US jobs report on Friday, the Dollar could remain on standby. Looking at the technical picture, the Dollar Index (DXY) could challenge 91.80 if a solid daily close above 91.31 is achieved. Should this level prove to be reliable resistance, a decline back towards 91.05 and 90.50 could be on the cards.

Commodity spotlight – Gold

Gold is trading within a range on the daily charts with layers of support around $1700 – $1665 and resistance at $1800. Although the MACD trades above 0, prices seem to be capped below the 100-day Simple Moving Average. There is a possibility that the precious metal remains rangebound until the US jobs report is published on Friday. Should the Dollar push higher on Thursday, this could inject Gold bears with enough confidence to drag prices below the $1770 – $1665 regions with the first level of interest at $1755.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Technical Outlook: Yen Crosses Under The Spotlight

Our currency spotlight shines on the Japanese Yen which has appreciated against most G10 currencies today.

Yen bulls could remain in the scene if U.S. Treasury yields decline further.

USDJPY blocked below 109.686?

It was not only the Japanese Yen that derived strength from the market caution. The Dollar has also dominated the G10 space today, appreciating against major peers including the Yen.

Given how the risk-off sentiment is supporting both currencies, a technical move could be needed to determine the USDJPY’s near-term outlook. There seem to be some layers of resistance around the 109.686 and 109.30 regions. Sustained weakness below these levels could encourage a decline towards 108.30 and possibly lower.

EURJPY: Technical pullback or start of a downtrend?

Taking a look at the technical picture, the EURJPY is heavily bullish on the daily charts. There have been consistently higher highs and higher lows while the MACD is trading comfortably above 0.

A technical pullback is in the works with 130.60 acting as potential dynamic support for bulls to push prices back higher. However, if this level proves to be unreliable support, a decline back towards 129.70 could be on the cards. Such a move may threaten the current uptrend and invite bears back into the game.

GBPJPY breakout on the horizon?

The currency pair has formed a symmetrical triangle pattern on the daily charts. This pattern either signals a continuation of the current trend or the start of a new trend in the opposite direction.

Given how prices are trading above both the 50-day and 100-day Simple Moving Average, the technicals swing in favour of bulls. However, an appreciating Japanese Yen could throw a proverbial wrench in the works, opening the doors for bears. A breakdown below the 50-day Simple Moving Average could result in a sell-off towards 148.50. If this level is cracked, the GBPJPY will turn bearish on the daily charts. Alternatively, a strong move back above 153.40 will most likely signal further upside.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Dollar To Be Weighed Down By Dovish Fed

The dollar’s declines come as Fed Chair Jerome Powell reminded markets that the US economic recovery needs to be more equitable, with almost 1 out of every 5 of the lowest-paid workers in America still unemployed since the pandemic broke out over a year ago. Powell’s comments prompted some segments of the markets to walk back expectations that the Fed could start removing its support for financial markets sooner than expected. The benchmark 10-year Treasury yields moderated back below the psychologically-important 1.60% mark on Monday, which in turn prompted a softening of the dollar.

Monday’s lower-than-expected readings for the final Markit US manufacturing PMI and the ISM manufacturing print, which registered 60.5 and 60.7 respectively, also underwhelmed dollar bulls. Compare the US data points against the latest economic indicators out of Europe on Monday. Germany’s March retail sales far exceeded market expectations, while the Markit Eurozone manufacturing PMI posted a record high.

Noting that the euro accounts for 57.6% of the DXY, the euro’s gains against the dollar heaped downward pressure on the dollar index. EURUSD is currently testing its 100-day moving average for support.

Meanwhile, despite the Pound’s climb yesterday, GBPUSD remains very much rangebound, with the 1.40 psychological level proving a tough nut to crack. With markets expecting a 60.7 print for the UK’s Markit manufacturing PMI announcement later today, a positive surprise could help lift Sterling higher. The Pound accounts for 11.9% of the DXY, hence Sterling gains tend to exert downward pressure on the DXY.

The buck has clearly started off the new month on the back foot against its G10 peers, and could continue being weighed down by dovish Fed commentary.

The slate of speeches by Fed officials over the coming days could force further moves in the greenback:

Tuesday, May 4

  • San Fran. Fed President Mary Daly
  • Minneapolis Fed President Neel Kashkari

Wednesday, May 5

  • Chicago Fed President Charles Evans
  • Cleveland Fed President Loretta Mester

Thursday, May 6

  • Dallas Fed President Robert Kaplan
  • Cleveland Fed President Loretta Mester

“The far-reaching impact of the Fed’s next policy move extends beyond major currencies. US stocks have also been swaying to such shifts in market expectations.”

On Monday, the reflation trade made its presence known, with the Dow Jones Industrial Average gaining 0.7% while the Nasdaq 100 fell by about 0.5%.

Investors bought up stocks in sectors that stand to benefit from the US economic reopening, such as energy, materials and industrials. Meanwhile, the S&P 500’s consumer discretionary sector was weighed down by the likes of Amazon and Tesla, as investors shy away from these pandemic-era darlings.

As long as market participants continue pinning their hopes on the global vaccination drive that is set to bring the world out of the pandemic, and worry less about the nagging concerns in the likes of India and Southeast Asia, that could ensure more legs for the reflation trade. As such, the tech-heavy Nasdaq 100 could underperform in the interim, with the index still trying to shed its tag of having too-rich valuations.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

After A Challenging Month, Will The Dollar Recover?

According to the latest data from the Commodity Futures Trading Commission, the net short positions on the dollar reached $10.27 billion against its major peers. That is more than $2 billion net shorts added compared to a week earlier and the highest in six weeks.

The dollar’s decline followed three back-to-back monthly gains as data began to show the US economy recovering at an amazingly fast pace, leading to higher inflation expectations and bond yields suggesting sooner than anticipated tightening in monetary policy.

However, the Federal Reserve did not agree with the market’s view and remained committed to keeping monetary policy extremely loose last week at its policy meeting, setting a high bar for any start date to reduce the pace of its asset purchases. The Fed requires substantial further progress in reaching its employment goals before starting the tapering process. Given the US labour market remains 8.4 million jobs short of its pre-pandemic employment levels, it seems there’s still a long way to go.

Data on Friday revealed a surge in US personal spending, personal income, personal consumption expenditure and consumer sentiment. This was a reminder of how far the US economy is outperforming other developed nations, especially after the Eurozone’s first quarter GDP report showed the continent had fallen into a double dip recession.

Given the market is a forward-looking mechanism, it tends to incorporate all currently known information and anticipated events. The narrative now is that the rest of the global economy continues to struggle with the Covid-19 pandemic but will sooner rather than later catch up with the US. However, latest Covid developments in India, Brazil and Turkey should be a reminder not to take anything for granted. The divergence of the global economy may or may not narrow depending on how these issues play out.

This week’s economic data will likely show the ongoing recovery in the US in the hard hit services sector, after the activity index jumped to a record high in March. Manufacturing activity is also expected to continue booming. On Friday, we will learn how many jobs were added to the US economy in April after 916,000 Americans found jobs in March. If we see an uptick in US 10-year yields towards 1.7%, this should become supportive of the US dollar, otherwise the global reflation trade will continue to pressure the greenback.

Despite Fed Chair Jerome Powell continuing to insist that inflationary pressures are transitory in nature, if commodity prices continue to surge and push breakeven rates higher, the Fed will need to change its language. We are already seeing member’s views diverging from Powell, with Dallas Fed President Robert Kaplan saying on Friday that any signs of excessive risk-taking would suggest it is time to consider fewer bond purchases. An increasing amount of similar voices could completely change the narrative in the market from a global economy narrowing the gap with the US to a one of the US tightening policy first.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: US Jobs Report Could Move Markets

Perhaps it’s prudent to consider the average performance of the S&P 500 over the past 20 years. For the month of May, the S&P 500 averaged a gain of 0.38%. While it’s the lowest average monthly climb, it still beats the average losses seen in other months over the past two decades:

  • January: -0.05%
  • February: -0.58%
  • March: 0.46%
  • April: 2.53%
  • May: 0.38%
  • June: -0.62%
  • July: 1.19%
  • August: -0.15%
  • September: -0.77%
  • October: 1.07%
  • November: 2.19%
  • December: 0.72%

“The historical averages suggests that who do sell out of US stocks in May could be leaving some profits on the table.”

In fact, the month of May has seen the S&P 500 register a monthly advance in 7 out of the past 8 years.

Although the first full week of this new month is set to begin on a quiet note, with several major markets closed for a holiday on Monday, there are still several notable events in store that could shake global financial markets:

Monday, May 3

  • China, Japan, UK markets closed
  • Manufacturing PMI for US, Eurozone, etc.
  • Fed Chair Jerome Powell speech
  • Tuesday, May 4

  • China, Japan markets closed
  • RBA policy decision
  • Fed speak: San Fran. Fed President Mary Daly, Minneapolis Fed President Neel Kashkari
  • Wednesday, May 5

  • China, Japan, South Korea markets closed
  • Fed speak: Chicago Fed President Charles Evans, Cleveland Fed President Loretta Mester
  • Uber Q1 earnings (after US markets close)
  • Thursday, May 6

  • BOE rate decision
  • ECB President Christine Lagarde speech
  • Fed speak: Dallas Fed President Robert Kaplan, Cleveland Fed President Loretta Mester
  • US weekly jobless claims
  • Friday, May 7

    • China exports
    • US April nonfarm payrolls

    “The Fed still holds arguably the biggest influence over how global equity markets would perform over the coming months.”

    Despite the repeated assurances by Fed officials that the US central bank will maintain its ultra-accommodative policy stance, yet the forward-looking nature of the markets demands that investors and traders try and pre-empt when US policymakers would pare back its bond purchases before eventually raising US interest rates.

    Hence, the speeches by Fed officials slated for the coming days could harbour more clues about the US monetary policy outlook. Fresh from last week’s FOMC meeting, investors and news reports would be eager for fresh clues about what may have been discussed before deciding to leave US interest rates floored at near-zero levels.

    Better jobs recovery could hasten Fed policy tweaks

    Amid such a backdrop, this week’s data releases pertaining to the US jobs market would be in particular focus. Better-than-expected readings for Thursday’s US weekly jobless claims, and also for the April US nonfarm payrolls print, due Friday, could inject more optimism into stocks that are set to benefit more from the US economic recovery.

    “Gains in energy and financial stocks could help the S&P 500 create a bigger gap above the psychological 4,200 mark. However, should the market narrative center on fears that the Fed would be pushed closer to pulling back their support for financial markets due to the recovery in the US economy, that could see a notable pullback towards the 4,120 support level for this blue-chip index.”

    At the time of writing, the futures contracts for all 3 major US benchmark indices are climbing, suggesting a positive start to May for equities. Still, markets have little qualms paring some of their risk exposure upon news this week that the Covid-19 pandemic could delay the global economic recovery.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Week In Review: Dovish Fed, US GDP Jumps, Blockbuster Tech Earnings

    Global stocks held near record highs on Monday as investors looked ahead to a week dominated by key economic data and quarterly earnings from tech giants.

    We covered various technical outlooks throughout the week with Gold snatching our attention on Monday. Despite the choppy price action seen during the second half of April, Gold is on route to concluding the month over 3.4% higher. Given the conflicting forces pulling and tugging at the precious metal, the next few weeks could be volatile.

    Our focus shifted to Tesla after its first-quarter earnings smashed expectations. We questioned whether Tesla shareholders were becoming an insatiable bunch after shares of the electric vehicle car maker fell as much as 3.1% in after-hours trading.

    On Tuesday, European stocks opened higher after US markets eked out fresh record highs overnight. The overall mood across markets turned mixed as investors adopted a cautious stance ahead of the Federal Reserve meeting.

    We decided to cover commodity currencies after the Canadian Dollar, New Zealand Dollar, and Australian Dollar appreciated against major peers in the G10 group.

    Remember how we highlighted how the USDCAD was screaming bearish? Well, prices eventually cut through the 1.2400 support like a hot knife through butter.

    As the Fed meeting and President Joe Biden’s spending plans loomed, market sentiment turned mixed with investors on the defense.

    Our stock of the week was Facebook which released its first-quarter earnings after US markets closed on Wednesday. The social giant beat on both earnings and revenue in Q1 with shares gaining almost 8% this week. Apple also reported an insanely great quarter with profts and revenues crushing expectations. The same story was for Microsoft and Google.

    It was all about the Federal Reserve on Wednesday evening. As widely expected, the central bank left interest rates unchanged while striking a dovish tone.

    After being punished by a dovish Federal Reserve, the dollar nursed its wounds on Thursday. In our technical outlook, we highlighted how the Dollar Index was under pressure on the daily, weekly and monthly charts. However, the Dollar sprung a surprise on Friday afternoon by aggressively appreciating across the board.

    Looking at the technical picture, a solid daily close above 91.31 could open the doors towards 91.80.

    Confidence over the US economy boosted by the GDP report which showed growth expanding at a 6.4% annualised rate in the first quarter of 2021.

    Risk-on was the name near the end of the week with the S&P 500 logging fresh record highs on Thursday. Interestingly, U.S. stocks lost ground on Friday but posted monthly gains thanks to a string of robust earnings. The S&P 500 has gained 5.24% in April, its biggest monthly rise since November 2020.

    April was a month defined by improving economic data from developed economies, earnings and worsening Covid-19 cases across the world. As head into the new month, the risk pendulum is bound to swing back and forth as investors juggle with these themes.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Risk Mood Heats Up

    US stock markets also made fresh record peaks, with the S&P500 closing strongly while the tech-heavy Nasdaq Composite touched an intraday high before paring some gains. We should also give a special mention to commodities which have been on a tear recently, with Copper hitting multi-year highs yesterday.

    “With US GDP already back to where it started pre-Covid, the Fed still on full easing mode and with yet more stimulus to come, it’s no wonder risky assets are surging ever higher.”

    Europe looking to brighter times

    There is even growing confidence in the Eurozone recovery, although the Q1 GDP data out today will most likely show a technical recession. Confidence figures this week from across the continent went through the roof and it’s significant that the previously hurting services sector is now also in expansion. With the vaccine rollout cranking up and the EU Recovery Fund getting approval from the German courts, the euro is enjoying its fourth week of gains versus the mighty dollar.

    EUR/USD has had a relatively smooth journey higher, after touching 1.17 at the end of last month and is on track for its biggest monthly gains in nine months.

    “May is typically a decent month for the greenback seasonally so a pause is quite possible. But the uptrend is strong and we could see more upside surprises in economic data out of the region in the coming weeks.”

    Oil closing in on highs

    Amongst the rip-roaring agricultural commodities and Copper hitting the magical $10,000 mark, oil has quietly been making headway as well. The weekly EIA report showed some continued positive signals regarding US demand, and while there are still concerns over the surge in Covid-19 cases in India, Europe at least seems to be heading in the right direction with summer travel now firmly on the cards too.

    “Since getting close to $60 towards the end of March, prices tracked sideways before rising steadily in the second week of this month.”

    The 50-day SMA has acted a solid support and the bulls took out this month’s high yesterday as momentum looks good for an attempt at the March highs above $71.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Dovish Fed And Big Earnings Surprises Send US Stocks To New Records

    The economy is firing on all cylinders with employment, consumer spending, manufacturing, services and the housing sector all exhibiting solid gains. Still, the Fed is steadfast in its attempt to achieve the Committee’s target of maximum employment and inflation at the rate of 2% over the long term.

    The FOMC is not even considering talking about slowing the $120 billion in asset purchases per month, suggesting that any tapering will not likely occur before the end of the year at the earliest. While Powell admits the Fed’s policy is leading to some frothiness in capital markets, he doesn’t see systematic financial stability risk.

    The key takeaway from yesterday’s FOMC meeting is that US monetary policy is going to remain extremely loose, no matter how hot some parts of the economy become.

    While the Fed did not disappoint investors, equities barely moved after Powell’s speech as markets had expected very little action. Currently trading at around 30 times price to earnings, the S&P 500 needs more than just an easy monetary policy to keep bulls in charge.

    The earnings season has been remarkable so far. Out of the 218 S&P 500 companies who have announced results, 85% have managed to beat profit estimates and 78% on revenue. Surprisingly though, the firms who managed to beat on the bottom line declined -0.2% on average on the day of their earnings announcement. Many stocks like Tesla, Microsoft and AMD are failing to gain traction following positive surprises. In fact, companies need to deliver substantial upside surprises to get investor’s attention. That’s what Alphabet, Apple and Facebook managed to deliver this week and they are the stocks driving equity benchmarks to new record highs.

    The dollar remains the most unloved currency for the month falling to a nine-week low early today. The reflation trade is clearly ongoing bolstered by extremely loose monetary policy, and with another $1.8 trillion in spending announced by US President Joe Biden, the budget deficit has only way to go, and that’s up. However, the US remains the best performing developed economy and this will be reflected in today’s GDP report. For the dollar to regain strength, we need to see interest rates differentials widening again, but this is not happening at the moment.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Fed Meeting: What You Need To Know

    However, it may be unwise to label this meeting a non-event given the improving domestic conditions in the United States.

    Although markets expect no change in the Federal Reserve policy, all eyes will be on the FOMC’s statement and press conference with Federal Reserve Chairman Jerome Powell.

    “Recent robust economic data from the United States may force the Fed to acknowledge the strengthening of the economy.”

    It must be kept in mind that the U.S. added 916,000 jobs in March while the gross domestic product (GDP) for Q1 is forecast to show a 6.7% increase quarter-on-quarter, according to Bloomberg estimates. If this optimism is reflected in the statement, it could fuel speculation over the central bank rolling back the extraordinary easing policies enforced to tackle the pandemic.

    In regards to inflation, prices are rising across the economy with the annual inflation rate hitting 2.6% in March. Although this is greater than the Fed’s 2% target for 2021, the central bank has said it will tolerate higher inflation and does not think the economy will overheat. Such may lead to Powell defending the dovish stance of the Federal Reserve during his press conference. However, he will need to choose his words wisely. If Powell comes across as too optimistic over the economic outlook, this may awaken Fed hawks.

    What does this mean for the Dollar?

    If the Fed meeting ends up being a non-event with the policy statement and press conference striking a dovish tone, the Dollar is likely to weaken. As the central banks pledge to keep interest rates lower for longer continue to weigh on the Greenback, the Dollar Index (DXY) has the potential to descend lower. Looking at the technical picture, the DXY remains under pressure on the daily charts with prices trading around 90.78 as of writing. Sustained weakness below 91.05 could encourage a decline towards 90.00.

    Alternatively, a hawkish surprise from the Fed may inject Dollar bulls with a renewed sense of confidence. Such an outcome may elevate prices back above 91.31 with 91.80 acting as the first level of interest.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Earnings Preview: Facebook In Focus

    “Despite regulatory pressure and lingering anti-trust threats, the social-media juggernaut is expected to report another stunning quarterly result this evening.”

    Such an outcome may boost confidence over the business outlook and possibly elevate Facebook shares which are up over 11% year-to-date.

    Given the optimism over a global economic recovery and countries across the world easing lockdown restrictions, the Q1 earnings will certainly be one of Facebook’s most significant in years.

    Market expectations: EPS & Earnings

    “According to Bloomberg, adjusted earnings per share (EPS) stand around $2.61 per share on $23.72 billion in revenues for Q1 2021.”

    For a full year, EPS are projected at $12.80 while full-year revenues are seen hitting roughly $108.11 billion – marking a 20% increase from 2020.

    Interestingly, monthly active users are forecast to hit 2.83 billion which is roughly 36% of the world population. Investor sentiment towards Facebook may brighten if the revenues and EPS meet or exceed forecasts.

    What to expect?

    “The hot topic is privacy. Apple plans to change to its iOS 14 software which forces iPhone users to approve Facebook collecting their data.”

    If Facebook users on iPhone reject, this could hit revenues going forward. But the question is by how much? Investors are likely to turn to the earnings release which may shed more light on this along with management opinions on what Apple’s latest move means for the business outlook.

    Although there is no official proof, there have been rumours that Facebook holds cryptocurrency. While such gossip has been questioned, most are considering this a possibility especially after Facebook’s failed attempt at a new cryptocurrency called Libra back in 2019. It will be interesting if the company reveals that it holds cryptocurrency during its earnings call this evening.

    “As the global economic outlook continues to brighten, Facebook remains one of the winners.”

    It must be kept in mind that small businesses will most likely benefit from the economy re-opening and normality returning. Given how Facebook gets a handsome chunk of its revenues from these small businesses, the business outlook remains encouraging and this may be reflected in the earnings report.

    Can Facebook retest all-time highs?

    Facebook shares are looking slightly bearish on the daily charts as there have been consistently lower lows and lower highs since hitting the all-time high of $315.73 on 8th April.

    Although prices are respecting a bearish channel and trading marginally below the 20 SMA, support can be found at $296.00. Should $296.00 prove to be reliable support, a rebound back towards $310 and $315.73 could be on the cards. Alternatively, a breakdown towards $296 may open the doors towards $290.50.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

    Wild, Wobbly, Or Whimpering Wednesday?

    Amid the slew of headline-grabbing events slated for Wednesday, markets are also contending with rising Treasury yields, with 10-year yields breaking above the psychological 1.60 level to hit its highest levels in two weeks. However, the VIX has pushed deeper into the sub-20 region, which suggests an expected calm in equities over the coming 30 days despite the potential volatility triggers lined up for today.

    The positive after-hours reaction to Alphabet’s blockbuster earnings report and its $50 billion share buyback announcement suggests some support for benchmark US indexes. However, that could be offset by the post-market declines in Microsoft’s stock prices despite its better-than-expected Q1 results.

    Fed unlikely to rock the boat

    The FOMC is widely expected to leave its policy settings unchanged at today’s meeting, with Chair Powell likely to stick to his script and pledge the Fed’s persistently accommodative stance.

    “Yet markets are ready to pounce on even the slightest hint of policy normalization amid an economic recovery that is gaining more and more traction.”

    The onus is on the Fed to clearly convey its intentions for QE tapering and rate hikes, or risk whipsawing markets into a frenzy. While such commentary is likely still some way out, that isn’t stopping investors from already framing their expectations for such eventualities for US monetary policy, especially if the hard data continues to show the US taking bigger strides into the post-pandemic era. Thursday’s release of the US Q1 GDP and the weekly jobless claims print could buffer the optimistic outlook for the US economy, while also feeding into the market’s expectations for the Fed’s eventual policy adjustments.

    Tax hike fears loom over Biden’s speech

    When US President Joe Biden addresses Congress for the first time as POTUS today, investors won’t just be considering the implications of his “American Families Plan” on the US economy, but also on how such spending plans are to be funded. Since last week, investors have been mulling the prospects of a capital gains tax hike, alongside the already-proposed corporate tax increase, which could have a dampening effect on bullish sentiment surrounding US equities moving forward.

    “While the S&P 500 and the Dow are still likelier to post fresh record highs over the near-term, the tech-heavy Nasdaq could be particularly weighed down considering that Big Tech appears to be prime targets for when the tax man comes a calling.”

    Oil slips after OPEC+ decision to stay the course

    Both Brent and WTI futures are paring some of Tuesday’s gains, after OPEC+ decided to press on with restoring more of their supplies over the next 3 months. The alliance appears confident that global supply-demand conditions can absorb the additional barrels, despite the persistently disconcerting developments surrounding the Covid-19 pandemic in major economies such as India and Brazil.

    “The incoming supplies indicates that $70 Brent is one step too far for the time being, barring surer signs that more countries can earnestly partake in the global economic recovery.”

    The continued rollout of the vaccine, coupled with the eventual loosening of Covid-19 curbing measures, are needed to justify to gradual rise in oil production. Markets must also continue believing that the global demand recovery remains on track in order to keep Brent prices above its 50-day moving average.

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    Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.