The markets are being driven by the declining US dollar following the FOMC meeting. The US dollar is collapsing as traders who were betting on the Fed to raise rates this summer unwind their positions. The comparatively good data out of Europe as China also try and curb their stock market rout is giving equities a boost higher.
A lot of the major Western indices are likely to finish the week with a 1% growth and the Hang Seng along with the Shanghai Stock Exchange are attempting to claw back some of those heavy losses which happened earlier this week. Dow Jones, S&P500, and Nasdaq are all trading near or above all-time highs.
US data out today has come in under expectations but the general feel to the markets is bullish risk-on following the FOMC meeting yesterday. The Us dollar has been the weakest major currency all day but is finding support between the daily 50 and 200 exponential moving averages.
If the DXY were to close either today or tomorrow below the daily 50 ema, I would be expecting an acceleration to the downside to initially take out the swing low from the end of June, all the way down to June FOMC impulsive move.
US GDP increased 6.5% in the second quarter but came in under expectations of 8.5%. Treasury secretary Yellen didn’t care though and applauded the US administration for returning the annualized economy back to pre-pandemic levels with an effective vaccination rollout and sound economic policies. Analysts now expect a big rebound in Q3 inventories with a probable revision higher for the Q2 data.
The personal consumption expenditures advance (PCE) expanded 6.4% from last quarter's 3.8%. Excluding food and energy prices, the PCE price index went from 2.7% to 6.1%.
US initial jobless claims for the week came in above market analysts estimates at 400k which was below the previous week's revised higher reading of 420k. The negative aspect is that the 4-week average has now risen to 394.50k which is greater than the previous reading of 386.50k and obviously going in the right direction for the Fed to see substantial progress.
The US pending home sales were worse than expected coming in at -1.3% against the predicted 0.3% and way under the previous revised higher 8.3% number. The fall in sales is the first drop in 4 months. This is one of the earliest indications in the housing market that prices have gone beyond the buyer's reach. Without wage inflation prices of high-ticket items will not be met and that will filter through to other items. Lots of the earnings reports stated that there are supply disruptions and higher costs associated with producing goods, which will have to be passed on for companies to keep the bottom line growing. If consumers stop accepting these higher prices and moving to essential items only, we could start to see deflation or at least stagflation.
The weaker US dollar is having a major influence on a lot of commodities and currency crosses.
Gold could have reached into the deep retracement of 61.8% to 76.40% on the last move down to $1750. Now we are clearly seeing a rise, the upside target in an AB=CD move would be $1983.80 with an extension on a bull trending move to $2127.00. Silver has also rebounded from a 4-month low to trade above $25.5 an ounce.
The GBPUSD is now trending higher having cleared some previous swing highs, which confirms the dip below the double bottom support was just a look below. Clearing out some weak longs and is now set to test the upper range highs and beyond 1.4000, as long as the COVID-19 delta doesn’t create a spike reversing the 6-day trend following Freedom Day.
The yen had been bid during the uncertainty of the markets earlier last week but we’re seeing moves back into risk-on assets like equities and commodities. Yields are still lower than a few months ago but they are curling higher these last couple of trading sessions indicating a move out of Treasuries as you go out along the curve. T-Bills are still very much in high demand and those 1-3 year yields are still depressed. The USDJPY though is making a lower high and looks likely to test lower to continue the downtrend. 108.80 would confirm this downtrend move and then we’re likely to test the daily 200-period ema around the 108.20 level.