The equities market is bound to end the week bearish as the US corporate tax hike and rising cases of Covid in Asia dampened risk appetite. The Euro is recovering from the shocking ECB fall on the back of expansive PMI data from the zone. Meanwhile, crypto sell-off continues as major futures deals near expiration.
The equities market plummetted on Wednesday and will most likely drop further to complete a red week. President Biden is about to fulfill the second part of his campaign promises – a massive stimulus to be funded by tax hikes on high-earners. Weeks ago, he approved $3 trillion to boost infrastructures with much of this coming from a corporate tax hike. The market thus panicked the passage of this into legislation and investors are booking profits. In addition, rising Covid cases in India and some Asian countries is not helping the situation. Equities are taking the back seat although there have been minor recoveries early on Friday. The market will most likely close negative for the week bar any big surprises.
In the currency market, the greenback is reluctant to build on this week’s gains. Despite the week’s risk-off sentiment, the dollar index has dropped over 0.5%. The first half rally this week could not be sustained as the index dipped back to 91. So far, the two central banks’ policies this week, BoC and ECB, were quite diverse thus building some form of uncertainties. The BoC on Wednesday went for a QE taper and surprisingly gave a very hawkish 2022 rate forecast. CAD jumped! It was believed that could be the start of central banks’ policy shift. However, the ECB went the other way – decided to wait on the Fed. Euro tanked! All eyes will be on the Fed and US GDP next week.
The S&P 500 is rejecting further recoveries above 4150 early in London. A dip below 4135 down to retest 4120 support is very likely. The US-10 year bond yield remains focused to the downside and is one of the drivers of the current USD struggle. In what looks strange from an inter-market perspective against a plummeting stock market, the dollar index is expected to drop far below 91 toward 90.5 especially if the US PMI data coming later today disappoints expectation.
In the FX market, with the Euro maintaining the current strength, EURUSD is expected to surge to 1.21 after rejecting a dip below 1.2 earlier on Friday. Meanwhile, the pace of the GBPUSD rally is expected to be much slower as the GBP looks weak across the board. If the Cable finds support at 1.385, we might see a surge to 1.4. Meanwhile, Aussie and Kiwi are expected to lag a bit as a falling S&P 500 might offset a falling dollar. However, the former might be weightier and thus drag NZDUSD and AUDUSD to 0.71 and 0.76 respectively albeit slowly. The BoC effect should still drag USDCAD with an eventual break below 1.245. Falling bond yield is expected to drag USDJPY along the 108 line. Traders should watch for break below 107.8 or 108.5 to confirm the near-term direction.
In the commodities market, Gold is still poised to resume the rally to 1800 with yield and dollar expected to fall further. Oil price might struggle to build on the current recovery ahead of next week’s OPEC meeting. WTI could be set for prices below $60.
Sell-off continues in the crypto market as Bitcoin trades for less than $50,000 for the first time since March. This is expected to be another dip phase and not a depression. Bitcoin, Ripple, Ethereum and Litecoin are expected to resume the upward trend once the bulls start showing the signs again.
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