The dollar is back on the front foot after Yellen’s rate comments. Also, equities are staging significant recovery despite rallying treasury yield. Oil rally pauses while Gold struggles further. Light macros ahead today but the dollar should surge further.
Asian Wrap ahead of London
Despite very robust earnings reports in the US, last week’s gains were pinned, then followed by a drastic fall caused mostly by plummeting tech stocks. NASDAQ was hit the most as the index faced its biggest cut since the early March sharp decline. S&P 500 is back at the 4180 level after giving up as much as 63 points on Tuesday. The Asian market continues to struggle as Covid cases in India and some other countries worsen. Also, despite the recent good data, European stocks are not left out of the onslaught.
Meanwhile, the dollar is gaining ground again after starting the week shedding some of last week’s resurgent gains. The index is back in the green zone above 91.3 before the London opening. EURUSD bears are fighting back to the 1.2 psychological level while the Sterling retreats below 1.39. High-beta FX – AUD and NZD – are being pressured in the Asian session to surrender some of Tuesday’s profits. Safe-haven JPY and CHF, however, are on the back foot as well. CAD struggles to add to its lead as oil bulls stay cautious.
In the commodities market, dollar-denominated Gold struggles as treasury mounts. The commodity plummets below 1780 after Tuesday’s quick surge was resisted below the mighty 1800. 1770 beckons. WTI is keeping the Asian bearish run intact ahead of London. The black commodity drops below $66.2 per barrel.
May 5 Market Forecast: London & New York
The macro-economic calendar is light today. However, the current sentiment drivers are strong enough to cause big moves in the London/New York session. The US stock market is expected to trade higher after the current sharp dip. Risk appetite was supported by Yellen’s rate hikes comment. The Secretary of the US Treasury said that interest rates will have to rise to avoid overheating the economy. This may also provide further support for the dollar bid.
The robust earnings report together with the last FOMC report (with Fed pledging further support as the US economy launches in top gear) is expected to steady the risk appetite among investors in the near term. On the other hand, further rate hike comments might cap the expected rally. The equities markets in the US are expected to recover from the current slump.
The S&P 500 chart above shows the index bullish run is still intact. The market quickly recovered from the recent slump and now staging a recovery that should lead to another fresh record high. Next targets can be watched at 4238 and 4300 Fibonacci projection levels.
Dollar to lead the FX space?
In the forex market, the dollar is expected to surge further despite a possible decline in the treasury yield. The greenback is expected to benefit from its local and international features. With the expectation of a faster US economic recovery, the dollar should rally. Although Yellen’s rate hike comment won’t be taken so much seriously but investors understand that a nearer than expected rate hike announcement is an option.
On the international scene, the US and EU are back at loggerheads with China. Geopolitical tension might be a major concern for investors if related stories dominate the headlines in the coming days and weeks. The dollar, being a global reserve currency, might then be the preferred safe haven for investors.
The chart above expects at least a 3-wave bullish correction on the dollar index up to 92 and 92.5 in the near term. Afterward, we will review the predominant market sentiments to see whether this will transcend to a much bigger rally or it’s just a correction of the larger bearish trend.
EURUSD broke the 1.2 psychological level. The currency pair is expected to plummet down to 1.195 and 1.19 if the dollar rises as expected. Meanwhile, GBPUSD struggles as a rising Sterling offset a rising Dollar. To the upside, traders should expect a further surge toward 1.395. With a rising bond yield, USDJPY has risen out of the shadow since last week. Further rally is possible to 110 and 110.5. High-beta AUD, CAD and NZD are expected to gain further but a rising dollar will most likely slow them down.
Investors remain focused on the treasury yield to trade Gold. The yellow metal is expected to struggle more above 1760 until the resilient 1800 is taken out. If that happens, further rallies will be opened to 1850.
Meanwhile, oil bulls are relentless despite the dip in the Asian market. Traders should watch out for a WTI breakout above 66.5 or a breakdown below 66 as near-term direction might be dependent on any of these levels.
Cryptos: Are the bulls ready for the next action?
After rising out of the shadow of the last bearish correction that bottomed at 46870 as the chart above shows, BTC bulls are expected to resume with another impulsive wave rally. Sub-wave (1) and (2) seem to have ended with the latter lasting up to 50% correction of the former at 53000. A break above the 59000 top should be enough confirmation to prepare for a fresh record high at $75,000 at least. Ripple, Ethereum and Litecoin are expected at $3, $5,000 and $400 respectively.
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