The Dow Jones has dropped over a thousand points in less than two trading days over fears of inflation. Later today, the US CPI data for April is key for the US dollar’s performance.
The US equity markets had a rough start to the trading week. The main indices are down for two consecutive days on fears of higher inflation in the United States.
While the decline has been stark, the market remains close to its all-time high. A correction from time to time is normal, as financial markets cannot grow and grow forever.
The US stock market weakness affected the European indices, too. As such, the Spanish Ibex fell below 9,000, the German DAX dropped over one hundred points to almost the 15,500 level, and the FTSE100 can barely exceed 7,000. The UK index is the most resilient, and actually is up close to 1% on the day on stronger-than-expected economic data released earlier in the London session.
Oil remains bid, up 1% on the day so far and is threatening to break above $66 again. Gold and silver hold their recent ranges as the market awaits the US headline and core CPI data.
The day started with the German Final CPI release for the month of April. It came out in line with expectations, up 0.7% MoM, having little or no effect on the euro pairs.
British pound traders have a large amount of economic data to digest. The good part is that all data today was positive for the pound, with the exception of Index of Services and the Preliminary Business Investment.
However, these are secondary in importance. Market participants wanted to see the Preliminary GDP, so as to interpret the economy’s growth. The data came out better than expected, triggering a strong reaction on the pound.
The US CPI and the 10-year bond auction are in focus later in the North American session, with the stock market indices in the driving seat.
Markets to Watch
Dow Jones, GBP/USD, EUR/JPY – markets in focus today.
Dow Jones looks bearish. The market formed a shooting star, or an inverse hammer formation, pointing to further weakness. Currently it met with support, but more weakness should not surprise anyone.
Cable benefited from the strong UK economic data. It reversed some of the weakness seen in Asia, and 1.42, respectively 1.40 are pivotal levels for the rest of the month.
The EUR/JPY pair remains “glued” to the 1.32 level. The daily timeframe reveals a possible rising wedge formation, but only a move below 1.31 will trigger more weakness. As long as the cross remains inside the two trendlines, bulls will keep trying for new highs.
Winners and Losers
Dow Jones and Nasdaq 100 lost a few percent this week, while the British pound outperformed its peers.