The market took its time to absorb the latest news from the Fed and although they are confident of a soft landing, US equities especially are signaling that the market is not so sure. Yields dropped today after yesterday’s strong close, so the US dollar couldn’t breach the highs of yesterday for long or reach the $100 level. This is still a good target in my opinion.
US benchmark yields dropped today following the FOMC meeting minutes announcement yesterday. The US dollar remained bid but at the end of the London session today, the DXY was still within yesterday’s trading range.
In the week ending April 1, initial jobless claims declined by 5,000 to 166,000, the lowest level since November 1968. There had been expectations that the IJC would come in at around 200k, but a revision of 171k in the previous week indicates a tighter labor market. The 4-week moving average declined by 8,000 in comparison to the week before to 170,000. The previous week's average was revised down by 30,500 to 178,000.
James Bullard, President of the Federal Reserve Bank of St. Louis, said today that the economy is likely to grow 2.8% this year. It is quite a big drop from the previous year's GDP, but very little stimulus is going into this year's economy. Current GDP growth is below 1%, according to the Atlanta Fed GDPNow model.
Alexander Novak, the deputy prime minister of Russia, said earlier that Russia's oil production is expected to drop 4 to 5% in April compared to March due to issues with logistics and insurance costs. Despite the International Energy Agency (IEA) releasing 60 million barrels of oil from its reserves yesterday, the prospect of fresh sanctions against Russian energy remains concerning.
The price action in Brent crude today broke through the $100 per barrel level and now we must wait and see if this is a sweep of the psychological level or whether the market believes the coordinated SPR release will help alleviate supply constraints. If the GDP in the US is due to drop and we are seeing other economic indicators pointing to an economic slowdown, this will also cause demand destruction in the energy market and prices will have to come down.
The forex heatmap still shows a flow into the euro, US dollar, yen, and out of the commodity pairs. This is usually a risk-off indicator.
The benchmark S&P500 is certainly trading towards the lows from yesterday and at the London close the European bourses, FTSE100, and US indices are all lower than their opening prices.
The USDJPY is in an interesting place for those looking to but the dip today. 124.00 proved to be solid resistance during the London session and the price made its way down to find a level of imbalance. Assuming the 123.00 holds during the US session, I am expecting to see higher prices in tomorrow’s session.
The sentiment indicator on the ActivTrader platform certainly shows that the trade is very crowded to the downside and that there is a high likelihood that these traders get their stops tested.