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US equity market dropped as Federal Reserve is more hawkish than the…

US equity market dropped as Federal Reserve is more hawkish than the market expected

20210617
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Market Focus

US equity market dropped as Federal Reserve is more hawkish than the market expected. Though the initiation of tapering talk is widely anticipated, two interest rate hikes by the end of 2023 revealed by the dot plot had investors surprised. The Nasdaq 100 and Dow Jones Industrial Average index lost 0.34% and 0.77% respectively. All sectors closed in the red within the S&P 500 index except for Consumer Discretionary shares. The 10-year US Treasury yield surged 7.5 basis points to 1.57%.

The Federal Reserve kept interest rate unchanged, and here are Bloomberg’s key takeaways from the FOMC statement and Chair Jerome Powell’s press conference:

  • Inflation: Inflation forecasts for this year moved up, with PCE rising to 3.4% from 2.4% and core PCE to 3% from 2.2%. Next year’s forecasts for both edged up just a tenth of a percentage point to 2.1%, signaling Fed participants don’t see this year’s jumps lasting significantly into next year.
  • Dot plot: The 2023 median dot was higher, a lot higher. It showed 13 officials seeing at least one rate hike in 2023 and 11 saw two. Additionally, 7 participants are calling for a rate high as early as 2022. Only five members had rates unchanged, and the median is now 0.625%. Powell tried to calm the market by saying the main takeaway from the dot plot should be that many participants are more comfortable that the economic conditions in the Fed’s forward guidance will be met somewhat sooner than previously thought.
  • Unemployment rate: forecast at 4.5 in 2021, 3.8 in 2022, and 3.5 in 2023 from 4.5, 3.9, and 3.5 respectively. Powell said labor supply and demand are not matching up well, but that it should clear in the coming months.
  • IOER: there was a five basis point hike to 0.15%.
  • Tapering: Fed will begin meeting-by-meeting to assess progress towards the goal and talk about tapering, and emphasize tapering will be “orderly, methodical and transparent”.

Main Pairs Movement

Euro is the second worst-performing currency against the dollar on Wednesday, the first being the Swiss Franc, which plunged 0.97% and 1.11% respectively. The Fed has turned from extreme dovish to slightly hawkish, and will finally start to kick off the long-expected tapering talks in forthcoming meetings. Given ECB’s plan to bulk up monetary and fiscal spending in the second half of 2021, this officially marks the divergence between Federal Reserve and European Central Bank. The outlook for Euro is not so bright in the 2H20.

The cable also fell 0.6% amid the strengthening dollar. Today’s plunge is more likely a temporary shock to the Sterling rather than a long-term bearish trend like the Euro. Speculators are still factoring in the delay of reopening from Britain. However, we don’t think this delay will prolong into the summer given UK’s successful vaccination campaign. Once the delta variant concern is taken off the table, the UK economy will steer at full speed. An optimistic and hawkish BoE will continue to underpin the Pound, ad they may act ahead of the Federal Reserve in easing QE.

Technical Analysis

GBPUSD (Daily Chart)

Cable finally exited its consolidation phase from the downside. After trapped within a tight range between 1.42 and 1.408 for more than a month, the bears are set to seek gains in the south. Price promptly plunged toward the ascending trendline after the FOMC statement release and was finding support around 1.402 as of writing. Further on the downside, immediate horizontal resistance would be the big 1.4 round number, followed by May’s low of 1.38, and 1.367.

Resistance: 1.42, 1.437, 1.464

Support: 1.4, 1.382, 1.369

XAUUSD (Daily Chart)

XAUUSD continues to head south after penetrated the 2-month ascending trendline and DMA20 dynamic support. The yellow metal breached below 61.8% Fibonacci level of $1850, which previously defended bears’ attack. Closing below this level could open doors for sellers to capitalize on large downside space, where we might witness February’s huge plummet in gold price given the lack of inflation-hedge demand post FOMC meeting. On the downside, $1815 will be the next key level to watch for.

Resistance: 1890, 1920, 1960

Support: 1815, 1780, 1743

USDCAD (Daily Chart)

USDCAD is undergoing a U-shape recovery after the price was extremely subdued for the past two months. However, it is not completely out of the woods yet since a big downward trendline still hangs above the current price level, we need to see a solid breakout from the trendline to confirm a bullish reversal in USDCAD. In the near term, this pair looks to contest the 1.23 hurdle and failing to overcome this level could put the bears back into the driver’s seat as the persistent higher oil price always bolsters the Canadian dollar.

Resistance: 1.23, 1.25, 1.264

Support: 1.2, 1.1925, 1.18

20210617
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Bitcoin surged to $41330 earlier today, and rapidly dropped below $40000 within…

Bitcoin surged to $41330 earlier today, and rapidly dropped below $40000 within two hours

20210616
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Market Focus

US stocks retreated from their peaks after the retail sales missed the expectations. Tech shares closed in the red, with the Nasdaq 100 dropped 0.71%, and Dow Jones declined 0.27%. Energy shares gained traction but still could not lift the S&P 500 index as Real Estates and Tech stocks dragging behind.

Investors remained calm ahead of Fed’s policy decision. The statement is set to include updated forecasts, and communication of any taper plans well in advance. “After nearly a year of anti-climactic FOMC meetings, tomorrow’s meeting has the potential to move markets because it will likely start the process of the Fed communicating tapering of this historic accommodation,” commented Tom Essaye former Merrill Lynch trader.

China called the US “very ill indeed,” after President Joe Biden formed an anti-China ally during his Europe trip. China Foreign Ministry spokesman Zhao criticized Biden’s efforts to counter China’s global economic expansion and told reporters “The G-7 had better take its pulse and come up with a prescription.” Tension continues to mount between the developed nations and the rising giant, though no actions are taken so far, such development worries investors.

Main Pairs Movement

The market turned cautious after the US depressing retail sales figures and the better-than-expected PPI. Investors focus on news about the Delta variant of COVID and uncertainty US infrastructure as the Fed’s decision approaches. Cryptos are struggling to cling gains.

The dollar index performed well heading into the US opening but turned sour after the release of the macros, closing the day mixed. The swiss and the fiber are unchanged against its American rival, as well as the Japanese Yen, while the loonie and the sterling declined significantly.

US 10-year Treasury yields have breached 1.50% after the US retail sales release, seemingly consolidating its previous gains. The UK and Canada CPI and industrial output also stand out on the economic calendar, along with the New Zealand GDP.

Oil price edged further north. WTI traded at $72.5, and Brent traded at $74.24, both recovering to the past-pandemic price level. Gold continues to fall, trading at $1858.82 as of writing.

Cryptos seems to experience a correction. Bitcoin surged to $41330 earlier today, and rapidly dropped below $40000 within two hours, and Ethereum slightly decreased toward its $2,500 support after it bounced off $2,600.

Technical Analysis

GBPUSD (Daily Chart)

GBPUSD has declined for three consecutive days, and the selling pressure seems still strong. The MACD histogram remains bearish, while the RSI indicator fell under 50. Sterling fell short for demand despite the goodish UK employment report as analysts are worried about the delay of the lockdown program forcing some struggling businesses to lay off. On the other hand, though Fed is supposed to remain monetary policy unchanged, a less dovish statement is still possible given the upbeat inflation figures, and this may further drag the pair down. The instant support for cable appears at 1.40, followed by the quarterly low, 1.367.

Resistance: 1.424, 1.438

Support: 1.40, 1.367

USDCAD (Daily Chart)

After three consecutive week’s consolidations, USDCAD finally broke through the 1.2 to 1.215 interval. Similar to other major pairs, the breakthrough of the loonie derived from the expectations of a slightly less dovish Fed after the US greater-than-expected inflation figures popped up. The MACD histogram appears bullish, while the RSI indicator has just consolidated in the buy-side territory.

However, pressure from the rising oil price is still a concern, adding that the policymakers’ attitude toward the higher inflation is still unclear, a solid rebound is still questionable. The FOMC press conference that takes place this Wednesday will provide further instructions from the officials. The best strategy is to stay positive but prudent before that.

Resistance: 1.225, 1.2367

Support: 1.215, 1.20, 1.192

AUDNZD (Daily Chart)

AUDNZD was rejected by the 1.081 resistance last Friday and slipped below 1.080 at the beginning of the week, traded 1.0794 as of writing. The Australian dollar got slightly weaker on the dovish RBA meeting minutes as the policymakers suggested no rush to taper, albeit emerging reflation.

However, due to the technicals, the bullish sentiment seems to resume a little more time, as the RSI indicator still hasn’t reached the overbought territory, and the MACD histogram remains positive. The strong 1.081 resistance level is the key. If breached, then, at least in the short term, the upside traction will still prevail.

Resistance: 1.081, 1.0945, 1.1045

Support: 1.060, 1.054, 1.042

20210616
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US consumer’s expectation for inflation rose to 3.6% over the medium term,…

US consumer’s expectation for inflation rose to 3.6% over the medium term, according to the Federal Reserve Bank of New York survey

20210615
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Market Focus

US stocks market was mixed as investors were adjusting positions to Thursday’s Federal Reserve meeting. Tech shares were gaining traction, with the Nasdaq 100 up nearly 1%, they also helped the S&P 500 to close in the green. Meanwhile, Financials dropped as JPMorgan Chase CEO Jamie Dimon suggested Wall Street’s trading prosperity in the pandemic era may fade away.

US President Joe Biden entered his first international summit looking for a breakthrough on vaccine pledges for developing countries, and a unity action to counter China’s economic might. US officials said the G-7 group is now a united ally to fight against China on issues such as forced labor and human rights abuses and to stand up to an alternative to China’s Belt and Road plan to counter Chinese influence abroad.

US consumer’s expectation for inflation rose to 3.6% over the medium term, refreshed an eight-year high in May, according to the Federal Reserve Bank of New York survey. “Notably, medium-term inflation expectations have increased at a slower pace than short-term inflation expectations over the past few months, and the difference between one- and three-year-ahead median inflation expectations marks a series high,” officials from New York Fed said in a press release.

Main Pairs Movement

Gold plunged as much as 1.7% during the first day of the week. Money managers are paring their long positions in the futures market ahead of Thursday’s FOMC meeting. Judging from market reaction to last week’s CPI figures, investors seemed to believe the current inflation spike is temporary and will ease over the second half of 2021. Of course, the Fed will factor in market reaction when considering how they should play the script. With market participants are more in line with the central bank proposed transitory inflation theory, we are unlikely to see any big surprise on Thursday. That being said, the Fed would still be guiding the market to where they desired by giving out little hints in the FOMC statement or adjusting their portfolio holdings (small enough to not cause any ripples across stocks and bond market while sending a signal).

Cable is on the back against US greenback amid lockdown extensions, dipped 0.05%. British Prime Minister Boris Johnson announced on Monday that reopening will be postponed to July 19th. Though the negative headline is much expected, it still keeps the pressure on the Sterling compared to other G-7 currencies.

Technical Analysis

EURUSD (Daily Chart)

EURUSD exits from consolidation mode and enters a bearish trend. Price failed to reclaim 1.22 last week, we have seen five rejections from 1.22 before it turns south. The market is perhaps pricing in a more dovish ECB than its US counterpart given Christine Lagarde’s speech on EU’s forthcoming larger spending. We do not rule out potential price recoveries or sideway trading before Thursday’s FOMC meeting. If the Fed’s message is affirmative then the bears should not have too many troubles at taking out 1.21 horizontal support, which would open doors to 1.2 and 1.195.

Resistance: 1.22, 1.235

Support: 1.21, 1.204, 1.195

XAUUSD (Daily Chart)

XAUUSD finally made a decisive breakout, and it was in favor of the sellers this time. Price penetrated the 2-month ascending trendline, along with its DMA20 support line. However, it quickly bounced off upon touching the 38.2% Fibonacci level at $1846. Today’s move indicates bearish reversal, which makes sense when considering investors are gradually buying into the Fed’s rhetoric of transitory inflation. With the market expecting the Fed to maintain easy monetary policies and not initial the taper talk during June’s meeting or even during the whole summer, Gold is likely to suffer until another impetus shows up. On the downside, $1815 will be the next key level to watch for.

Resistance: 1894, 1959, 2000

Support: 1846, 1822, 1790

USDJPY (Daily Chart)

USDJPY is building on last Friday’s goodish rebound, climbed 0.35% on Monday. This pair is well fitted within its ascending channel and managed to regain 110 handles. Now there is a solid breakout to the upside, the buying bias will be here to stay until meeting the yearly high of 110.8. On a larger timeframe, USDJPY stills show a bullish trend after April’s pullback is proved to be temporary. Further in the north, stern resistance sits around 112 and 113.8.

Resistance: 110.8, 112, 113.8

Support: 108.7, 107.9, 106.7

20210615
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