US stocks bounce back sharply, erasing Friday’s losses ahead of today’s Powell testimony. What changed since last Wednesday, if anything?
The US equity markets closed last week at their lows. All major indices suffered after the Federal Reserve delivered a hawkish signal at its Wednesday meeting.
More precisely, the Fed acknowledged that it must react if inflation keeps rising and the economic recovery continues. It did not taper the asset purchases or anything, but the signal is clearly one that points to a shift in the Fed’s language.
As such, markets corrected, but yesterday recovered sharply. The S&P500 reversed all its Friday’s losses, and some companies (e.g. Microsoft) reached a new all-time high.
The bullish momentum on stocks triggered a downward move on the US dollar. The Australian dollar and the euro both gained against the dollar, recovering some of the losses from last week.
The cryptocurrency market had a bad day yesterday. The trading week started as bad as possible for crypto holders, as Ethereum was down close to 15% at some point, and Bitcoin close to 10%.
MicroStrategy announced that it completed its latest $500 million Bitcoin purchase and now holds over 100k Bitcoins. The problem with the statement is that the price kept declining despite all the buying, and so the cryptocurrency assets remain bearish moving forward.
Commodities trade with a mixed tone, in the sense that the WTI crude oil price remains well bid, trading above $73, while gold corrected after the Fed’s meeting last week. The strength seen in the price of oil points to further upside, with many voices already calling for a move close to the $100 in the second half of the year.
Nothing worth mentioning today except the Fed’s Chair testimony in front of the House Select Subcommittee on the Coronavirus Crisis. Powell will likely keep the same narrative as last Wednesday, but markets will scrutinise his wording in search of something new.
Markets to Watch
S&P500, USD/JPY, EUR/GBP – markets in focus today.
The stock market indices in the United States started the week on a strong note, erasing most of the previous week’s losses. As such, the S&P500 is back at its highs, while holding the series of higher lows. The implications are that the market forms a triangle as a continuation pattern, so the bias remains bullish while the series mentioned continues.
The USD/JPY traders may look at the recent price action from both a bullish and bearish perspective. On the bullish side, it seems unlikely that the market will not make a new marginal high above 111. On the bearish side, another failure at the 111 suggests a possible double top in place. Hence, it is time to let the market move first, and act second.
Two days ahead of the Bank of England’s meeting, the EUR/GBP cross is unable to bounce back from the lows. The ongoing weakness suggests another attempt to the recent lows is on the cards, especially if the Bank of England sends some kind of a hawkish signal, inspired by last week’s Fed’s meeting.
Winners and Losers
US equities posted an impressive rally yesterday, while the Japanese yen gave back some of its gains against the euro.