Financial markets shrug off the Fed’s hawkish message from last week. The Nasdaq 100 index led the recovery, and Fed members’ speeches and interventions dominated financial headlines this week.
The Federal Reserve of the United States (Fed) surprised markets at its previous meeting. Unexpectedly, the FOMC Statement was more hawkish than predicted, triggering a sharp move higher on the US dollar and lower on the US equity markets.
But it all lasted for just a few days. Starting last Monday, markets recovered and the US dollar weakness resumed. Responsible for the U-turn was, once again, the Fed.
More precisely, Fed members had numerous interventions this week, including Fed Chair Powell that testified on Tuesday in front of the House Select Subcommittee on the coronavirus crisis. He downplayed the hawkish message and the markets reversed.
The verbal “intervention” continues. Yesterday and today, ten Fed members have scheduled speeches. Yesterday, Fed members Barkin, Bostic, Williams, Bullard and Kaplan spoke on various topics related to the outlook for the economy and monetary policy. Later today, Kashkari, Williams, Rosengren and Mester will also speak on the latest economic developments and monetary policy.
After Tuesday, slow summer trading conditions caused most US stock indices to trade with a bid tone. The Nasdaq 100, in particular, was bullish this week, posting all-time highs during a relentless surge.
Gold is unable to retake the $1,800 level despite the US dollar turning weaker this week. On the other hand, crude oil holds above $72, so the commodities markets trade with a mixed tone.
The Core PCE Price Index is the main economic release of the day. The market participants expect a new increase by 0.6% on a monthly basis. Also, changes in personal income and personal spending will impact markets as traders prepare for the end of the trading month and the Non-Farm Payrolls report next week.
Yesterday, the US Q1 final GDP was confirmed at 6.4%, an impressive performance by all standards. The US leads the economic recovery and the positive spillover effects are expected to be felt in other countries, too.
Markets to Watch
Nasdaq 100, EUR/USD, USD/CAD – markets in focus today.
Nasdaq 100 is the star of the week. The technical picture still looks bullish despite the market reaching all-time highs this week. It appears that another triangle as a continuation pattern has ended and judging by its measured move, we should not be surprised to see the Nasdaq 100 bullish run continuing toward the 16,000 level.
Much of the EUR/USD bearishness from last week disappeared as the pair found a bottom at the 1.1850 area. Truth be told, on its way lower after the Fed’s hawkish statement, the EUR/USD pair did not break the series of higher lows, so the bias remains bullish. Nevertheless, bears may want to step back in on a break and close below 1.18. Without such developments, the EUR/USD pair remains bullish while above the rising trendline.
This USD/CAD daily chart reflects perfectly what is happening to the crude oil price. The resilience of the oil price to make even the slightest correction represents a bullish incentive for the Canadian dollar. The USD/CAD daily chart is literally a huge bearish trend, and even last week’s spike was not strong enough to break the lower highs series. While the trendline is pierced, without breaking the previous lower high the sentiment remains bearish and we should not discount another attempt at the 1.20 level and maybe even below.
Winners and Losers
Nasdaq 100 and US equities outperformed on the back of a weak US dollar. Crude oil remains well bid above $70.