The Fed has signaled that it will start discussing the unwinding of its accommodative policy in the upcoming meetings. The US dollar bounced but still trades with an offered tone overall.
The trading week was characterised by two main events. It started with Elon Musk talking down Bitcoin on Twitter, and the bearish move that followed turned out to be just the start of a cryptocurrency market carnage.
Ethereum lost over 25% in a few hours on Wednesday, and Bitcoin briefly traded close to $32,000. In other words, Bitcoin lost 50% of its value, down from over $64,000 in just a few weeks. Once again, it proves that it has a long way until becoming a store of value, and some institutional investors must give some explanation as to why directing funds to such speculative assets as the crypto ones.
The second thing that moved markets was the Fed unexpectedly signaling the tapering of its asset purchases. It indicated that they will start talking about or considering tapering in the upcoming sessions. So not in June, but soon. However, the financial market participants typically trade in anticipation of policy turns, and this is the first time the Fed has hinted at one such turn. Hence, we should not be surprised to see some more market players taking some risk off the table, as the US dollar was sold aggressively in the past six weeks or so.
The stock market did not like the Fed’s signal, and the main indices reacted accordingly. The S&P500 traded with an offered tone all week, as did the Dow Jones.
In Europe, the FTSE100 still hovers around the 7,000-point level, down a bit on Wednesday on stronger than expected inflation data in the United Kingdom. The German index is also holding close to its recent highs, with the 15,000 level being pivotal.
Commodities had a mixed week, with oil losing or gaining about 3% in more than two days this week. Still, while above $60, it remains bullish. Gold and silver acted like a store of value, while the cryptocurrency market showed investors how volatile they could be.
The remainder of the trading week is full of important economic events. PMIs are released in the Euro area and the UK, and so are the Retail Sales in the United Kingdom and Canada. Moreover, the ECB’s President Lagarde speaks two days after the release of the ECB’s Financial Stability Review.
Markets to Watch
S&P500, EUR/JPY, AUD/USD – markets in focus today.
The past two weeks showed weakness in the S&P500 index, as the overall tone was bearish. However, looking at the bigger picture, the weekly timeframe still looks constructive, suggesting that the bulls are still in control.
The rising trendline defines the bullish trend, and the market keeps forming higher highs and higher lows. As long as the price remains above the trendline, a new higher high remains in the cards.
For the end of this trading week, the focus will be on the market’s ability to move below the previous week’s lows. A failure to do so should see the flows rotating, building pressure to the upside once again.
If there is one market that trended recently, it is the EUR/JPY. The weekly chart above, while showing a rising wedge pattern, a bearish development, remains constructive while the price action sits above the lower trendline. However, bulls may choose to book some profits as the market has reached dynamic resistance this week. A reversal toward the lower edge of the pattern spells trouble for the months ahead.
The AUD/USD consolidated the current levels for the entire year so far. The pattern looks like a head and shoulders formation on the weekly chart, with a very small head, but a long consolidation for the right shoulder. A move below 0.75 should trigger more weakness toward 0.70 in the weeks and months ahead.
Winners and Losers
The EUR/JPY and gold had a terrific week, considering the volatility in the cryptocurrency market and the Fed’s surprise message. The US dollar remained offered, being sold on every attempt to bounce.