Daily Market Analysis from ForexMart

US stock market opens this week with decline​​​​​​​

In the session on Monday, US stock indices dropped on the back of a record rise in the yield of the 10-year Treasury note.

As a result, all three major indices – the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite – sank by 0.1%, having settled at 34,411.69, 4,391.69, and 13,332.36 respectively.

The major outsiders among the DJIA companies were the securities of Walt Disney Co. (-2.1%), Honeywell International Inc. (-1.6%), and Home Depot Inc. (-1.4%). The best performers were Goldman Sachs Group Inc. (+2.7%) and Intel Corp. (+2.1%).

Bank of America Corp's shares rose by 3.4% on Monday. In the first quarter of the financial year, the bank's net profit fell by 12%. Despite this, the final earnings report exceeded analysts' expectations as the total revenue increased by 2%.

The Bank of New York Mellon securities dropped in value by 2.3% as the company's report showed a decline in profit for the first quarter. At the same time, earnings per share turned out to be higher than market forecasts.

Shares of the Chinese taxi aggregator Didi Global Inc. plunged by 18.5% yesterday after the company reported a 12.7% drop in revenue in the fourth quarter of 2021.

The share price of Natus Medical Inc., a developer, manufacturer, and supplier of screening devices, surged by 29%. As was reported earlier, Natus Medical is being acquired by investment company ArchiMed for $1.2 billion.

The value of Southwest Gas Holdings Inc. went up by 5.7% following the reports that the company is considering various scenarios for its future development, including a possible sale.

On Monday, the price of US government bonds continued to decline, while the yield of the 10-year Treasury bills increased by 4 basis points and soared to 2.861%. This was the highest closing rate since the end of 2018. So, the bond yield has gained more than half a percentage point since early April.

As a rule, a rise in US Treasury yield puts pressure on risk assets. This rule is especially evident in the case of tech stocks and consumer cyclical companies.

This week, markets will closely watch the steps of the US Federal Reserve who intends to increase the interest rate in the near future. The regulator is trying to cap running inflation and save the US economy from significant damage.

At the same time, investors believe that measures taken by the Fed are not enough to tackle inflation. They hope that at its next meetings in May and June, the US central bank will increase the benchmark rate by 0.5 percentage points. Last month, the Fed raised the rate by 0.25 percentage points to 0.25% -0.5%.

Recently, analysts at one of the world's largest investment banks, Goldman Sachs Group Inc., have warned that there is a 35% chance of a recession in the US in the next two years. Therefore, the US Federal Reserve should tighten its monetary policy to the extent where it will help reduce job openings without sharply rising unemployment.

Goldman Sachs notes that achieving a so-called "soft landing" may be tough because historically the gap between jobs and the labor force has narrowed significantly only during recessions.

In addition, market participants will closely monitor the financial reports of the country's leading corporations. Such popular investor choices as Netflix, Tesla, Johnson & Johnson, Snap, Twitter, and United Airlines will reveal their earnings reports this week.

The financial results of the US corporate giants will show how successfully these companies are coping with the permanently rising inflation.

USD/JPY: dollar at its 20-year high versus Japanese yen

Pressure on the yen has returned. On Wednesday morning, USD bulls pushed the pair to the psychological level of 130.

The greenback is getting stronger versus the Japanese yen amid the difference in the monetary policies of their central banks as well as strong divergence between Japanese and US bond yields.

Earlier today, the dollar surged to its 20-year high against the yen. Eventually, USD/JPY skyrocketed to 129.43 and then bounced to 128.615.analytics625fb5aacbbf4.jpg

The dollar swelled on hawkish comments by a Fed official, hinting at even more aggressive moves by the US regulator.

The ongoing lockdown in China aimed at curbing the spread of COVID-19 is believed to only make things worse when it comes to global supply chains. Against such a backdrop, inflation will accelerate and the Fed will have to resort to emergency measures to tame it.

In this light, the US Treasury yield has extended the rally. During the Asian session, yields hit the high of 2.981% that was previously recorded in December 2018.

Unlike its American counterpart, the Bank of Japan still sticks to its dovish monetary policy stance. On Wednesday, the regulator offered to buy an unlimited amount of 10-year bonds at 0.25% to defend the yield target.

The Bank of Japan is committed to maintaining yields at around zero percent, which is the main driver for USD/JPY. The pair is now on track for its second monthly rally in a row. USD/JPY grew by 5.8% in March and advanced by more than 5% in April.

Geopolitical uncertainty and the escalation of the Russia-Ukraine conflict are playing on the side of the greenback with demand for the safe haven being on the rise.

Earlier today, USDX increased to 101.01 and then fell to 100.76 versus the basket of 6 major currencies.

The greenback has received additional support from the dovish People's Bank of China. On Wednesday, the Chinese central bank announced it would maintain its benchmark interest rates for corporate and household loans unchanged. In this light, the Chinese yuan dropped against the dollar to its October 2021 low of 6.4115.

USD/CAD: Loonie is confused by ups and downs and looks to the downside, then to the upside​​​​​​​

The Canadian dollar started the week on the rise, and ends it in some confusion. After disappointing macro statistics and another round of inflation, the loonie significantly fell. However, the loonie is trying to "keep face" and is looking for ways out of this situation.

The Canadian dollar strengthened against the US dollar in the middle of the week, reaching 1.2584. However, after four days of growth, the USD/CAD pair showed a downward momentum, retreating from the local high at 1.2644. To date, the pair is struggling to hold its positions, but is determined to catch up. On Thursday, April 21, the USD/CAD pair traded at 1.2480, leaning to the downside and upside from time to time.

The "loonie" was tripped up by the growing inflation recorded in Canada. According to current data, consumer inflation in the country accelerated to 6.7% in March, exceeding forecasts. Recall that this figure was 5.7% in February. Against this background, the Bank of Canada is interested in raising interest rates above current levels. The central bank's immediate goals are to curb inflation without provoking a recession in the economy.

The pressure on the USD/CAD pair is exerted by the growing US currency. According to analysts, the resistance to the dollar is draining the loonies. In the future, the loonie will sink even more in relation to the greenback, however, it will strengthen against the euro.

The Canadian currency was supported by the increase in the key rate by the Bank of Canada (by 50 bp) recorded last week. In addition, the central bank announced the start of quantitative tightening in response to accelerating inflation.

The Canadian economy got a head start thanks to rising prices for commodities and energy. This contributes to the decisive actions of the Bank of Canada, aimed at normalizing monetary policy. The country's economy is on the winning side compared to other states that are importers of energy and hydrocarbons. In such a situation, the CAD receives tripartite support: from a significant influx of money into the country, from the growth of business activity and the potential tightening of the central bank's monetary policy.

According to experts, galloping inflation is a weighty argument for further tightening of monetary policy by the Bank of Canada. The implementation of such a scenario will strengthen the position of the Canadian dollar in the medium term. In such a situation, experts recommend holding short positions on the USD/CAD pair with a target of 1.2450.

Gold to resume growth in near term​​​​​​​

Gold closes this week with losses despite a great start. On Monday, the price shortly exceeded $2,000. Will gold develop an impressive rally again?

Since the beginning of the week, the precious metal has depreciated by 1.4%. Now it is on its way to the first weekly drop in 3 weeks.

The main factors that sent gold down from a 5-day high reached on Monday are the strengthening of the US dollar and the rise in US Treasury yield.

Both USD and Treasury yields advanced this week on expectations of a more aggressive approach from the Fed.

There have been some very tough comments by the Fed officials in recent days, and especially the recent statement made by the Fed Chair.

Speaking at a meeting of the International Monetary Fund, Jerome Powell made it clear that the regulator is set to raise interest rates by 50 basis points in May.

"Inflation is now much higher and the interest rate is more flexible. It is appropriate in my view to be moving a little more quickly," he said.

The hawkish tone of the Fed Chair weighed on the gold quotes. The precious metal closed yesterday's trading down by 0.4%, or $7.40, at $1,948.20. This is the lowest value in 2 weeks.

Silver futures for May also declined by 2.6%, or 65 cents, compared to the previous close. So, the price of silver fell to $24,621.

The precious metals market was also affected by the comments about the ECB policy made by EU officials.

In particular, Bundesbank President Joachim Nagel said that the regulator could raise interest rates as early as the beginning of the third quarter.

Now markets expect a rate hike by 20 basis points by July and by more than 70 basis points by the end of the year. If such a scenario comes true, the benchmark interest rate will be above zero for the first time since 2013. This will serve as a catalyst for the euro.

The tightening of the monetary policy of major central banks is a key negative factor for gold.

In addition, the geopolitical crisis is another driver for the value of gold. The aggravation of tensions between Russia and Ukraine allowed the asset to go slightly higher today.

At the time of writing, gold was up by 0.2% and was trading at $1,952.00.

On Wednesday, Moscow sent a draft peace agreement to Kyiv. However, there is no talk of an early ceasefire.

The US and its allies continue to supply Ukraine with weapons, including heavy artillery, so that its forces can repel Russian advances in the eastern part of the country.

The latest reports from the UK Defense Ministry suggest that Russia will try to conduct a quick and decisive fight in Ukraine before Victory Day.

Russia is seeking to demonstrate significant progress in Ukraine ahead of May 9, an important date for Moscow.

According to forecasts, a serious escalation of the conflict in this period may lead to additional sanctions against the Kremlin.

The next anti-Russian sanctions are likely to raise inflationary expectations, which will be a positive factor for gold.

Gold is expected to develop an uptrend ahead of Victory Day in Russia.

American stock indices fell by 2.6-2.8%​​​​​​​

Pressure on financial markets continues to come from growing expectations of a rapid tightening of monetary policy by the Federal Reserve System (Fed), worsening the mood of investors, already worried about the ongoing acceleration of inflation and the situation with COVID-19 in China. Traders are increasingly afraid that the Fed's cycle of raising the base interest rate could lead to a recession in the US economy.

Fed Chairman Jerome Powell, speaking Thursday at an event during the spring meetings of the International Monetary Fund and the World Bank, said that the Fed may need to move a little faster with a rate hike.

It was Powell's last public appearance before the next meeting of the Federal Open Market Committee (FOMC) on May 3-4. On the previous FOMC raised the rate by 25 basis points (bp) to 0.25-0.5%. At the same time, the last time the Fed raised the rate at two meetings in a row was in 2006, and the rise by 50 bp at once. hasn't been since 2000.

Judging by the rate futures, the market is almost certain that the Fed will increase the cost of borrowing by at least 50 bp. at each of the next two meetings - in May and June. At the same time, traders estimate the probability of raising the base interest rate by 75 bp at once at 94%. in June, according to data from CME Group Inc.

The two-year US Treasuries yielded 2.71% on Friday, the highest since December 2018.

Traders continue to follow the quarterly reports of companies, which are generally quite favorable. In the case of S&P 500 companies that have already reported for the past quarter, total earnings per share turned out to be 8.2% better than experts' forecast, according to Credit Suisse data. The performance of about 75% of companies exceeded market expectations. However, analysts fear that companies' results will worsen in the near future due to higher rates.

The Dow Jones Industrial Average fell by 981.36 points (2.82%) by the close of the market on Friday to 33,811.4 points.

Standard & Poor''s 500 fell 121.88 points (2.77%) to 4271.78 points.

The Nasdaq Composite dropped 335.36 points or 2.55% to 12839.29 points.

At the end of the week Dow Jones lost 3.9%, S&P 500 - 2.7%, Nasdaq Composite - 1.9%.

Shares of American Express Co. lost 2.8% in price on Friday, despite the fact that the quarterly report of the company, which is one of the leaders in the US plastic card market, was better than market forecasts.

The price of securities of the gold mining company Newmont Corp. fell by 3.3%. Newmont's first-quarter net income and revenue came in below market expectations due to the company's rapidly rising costs.

Share price of Verizon Communications Inc. decreased by 5.6%. The US telecom operator's adjusted earnings for the last quarter came in slightly better than the market's forecast, while revenue fell slightly short of expectations.

The price of Gap Inc. papers. collapsed by 18%. The clothing company has announced the resignation of Nancy Green as president and CEO of the Old Navy brand. In addition, Gap said it expects a larger drop in sales in the first fiscal quarter than previously thought.

Kimberly-Clark Corp stock quotes and Schlumberger Ltd., which posted strong first-quarter results, rose 8.1% and 2.5%, respectively.

Tips for beginner traders in EUR/USD and GBP/USD on April 27, 2022​​​​​​​

Economic calendar for April 27

Today is a rather boring day in terms of macroeconomic statistics due to the lack of statistical data significant for the market. The only thing that will be published is the index of pending sales in the United States real estate market, where fluctuations in the negative zone are predicted.

Trading plan for EUR/USD on April 27

The downward trend is considered the main movement in the market, there are prospects for a further decline. In order for a signal to appear for the subsequent growth of the volume of short positions, the quote must be kept below the level of 1.0636 in the daily period. Until then, the risk of a price rebound remains in the market, which will be justified by the oversold status of the euro.


Trading plan for GBP/USD on April 27

Despite the colossal oversold level of the pound, there is still a downward interest in the market. It is caused by the inertia-speculative behavior of traders who ignore the oversold status. Sooner or later, there will be a technical pullback or a full-size correction in the market. This movement will not break the integrity of the downward trend. The values 1.2500, 1.2250, and 1.2000 are considered variable pivot points.

Tips for beginner traders in EUR/USD and GBP/USD on April 28, 2022​​​​​​​

Yesterday was a rather boring day in terms of macroeconomic statistics due to the lack of significant statistical data for the market. The only thing that was published was the index of pending home sales in the United States, which was of little interest to anyone.

Economic calendar for April 28
The first estimate of the US GDP for the first quarter is expected today. The data may reflect a significant slowdown in economic growth, which will lead to a weakening of dollar positions.

At the same time, weekly data on jobless claims will be published, which is predicted to reduce in volume. This is a positive factor for the US labor market.

Statistics details:

The volume of continuing claims for benefits may be reduced from 1.417 million to 1.403 million.

The volume of initial claims for benefits may be reduced from 184,000 to 180,000.

Time targeting

US GDP - 12:30 UTC

US Jobless Claims - 12:30 UTC

Trading plan for EUR/USD on April 28
The level of 1.0500 plays the role of a support in the market, which may lead to a reduction in the volume of short positions. As a result, a technical pullback or a full-size correction is allowed. At the same time, the inertia-speculative behavior of traders allows a breakdown of the control level, where the signal of oversold will be ignored by market participants. In this case, holding the price below 1.0500 in a four-hour period will lead to the subsequent weakening of the euro towards 1.0350.

Trading plan for GBP/USD on April 28
A stable holding of the price below the level of 1.2500 may lead to a subsequent increase in the volume of short positions. The signal about the oversold pound sterling can be ignored by speculators, who are focused on the inertial move.

The technical correction scenario is still being considered by traders, but in order to confirm it, the quote first needs to determine the pivot point.

Note that the values of 1.2500, 1.2250, and 1.2000 are considered as variable pivot points.

Tips for beginner traders in EUR/USD and GBP/USD on April 29, 2022

Economic calendar for April 29
Today, the publication of the first estimate of Eurozone GDP for the first quarter is expected, where the data are slightly exaggerated. An acceleration in economic growth from 4.6% to 5.0% was predicted, despite the fact that the situation in the world and Europe does not favor GDP growth. Thus, there is an assumption that the data will come out worse than expected, which will negatively affect the euro exchange rate.

At the same time, data on inflation in the EU will be published, where further growth is expected from 7.4% to 7.5%. This is a negative factor for the economy, which will also put pressure on the European currency.

Time targeting

Eurozone GDP - 09:00 UTC

Eurozone Inflation - 09:00 UTC

Trading plan for EUR/USD on April 29
The technical pullback is only a temporary manifestation of the price, the downward mood persists in the market. In order for a new round of the downward cycle to occur, the quote needs to be stable below the 1.0500 level. This will lead to an increase in the volume of short positions and a movement towards the low of 1.0350. Until then, there will be a pullback in the market, which serves as a regrouping of trading forces.

Trading plan for GBP/USD on April 29
There is currently a technical pullback in the market that serves as a regrouping of trading forces. Over time, the overheating of short positions will subside. This will lead to the subsequent weakening of the pound sterling, which is in line with the main trend.

Market participants consider the psychological level of 1.2000 as a reference point for a downward trend.

EUR/USD: Is a trend reversal possible?​​​​​​​

Major dollar pairs froze in anticipation of the announcement of the results of the Fed's May meeting. The EUR/USD pair was no exception here: the price settled at the bottom of the 5th figure, demonstrating low volatility. Over the past few days, both sellers and buyers have tried their hand. But they were unable to turn the tide in their favor. The EUR/USD bears failed to gain a foothold within the 4th figure in order to theoretically qualify for further decline, while the pair's bulls failed to develop a corrective movement, which bogged down near the 1.0580 target. As a result, the parties took a defensive position, waiting for the Fed's verdict.

By and large, there are only two options for the development of events: either traders will go to the bottom of the fourth figure in order to further test the support level of 1.0350 (this is the area of 20-year lows), or buyers will drag the pair into the range of 1.0660–1. 0730 (Tenkan-sen line and middle line of Bollinger Bands on D1 respectively).

Looking ahead, it should be noted that trading in dollar pairs is extremely risky now, given the fact that the intrigue around the results of the May meeting remains. On the one hand, it is quite clear that the Fed will take a hawkish stance, raising interest rates and declaring further steps in this direction. But on the other hand, there is no consensus among the expert community regarding the pace of monetary tightening.

For example, the option of a 75-point rate increase following the results of the May meeting is not at all excluded (although such a scenario is recognized as unlikely). Or the regulator may allow the rate to increase by this amount at the June meeting, if US inflation continues to show rapid growth.

In general, it doesn't matter whether the Fed raises the rate by 75 points at the May meeting, or announces such a move in the context of the June meeting: the effect will be the same. In this case, we will witness a dollar rally throughout the market, including the EUR/USD pair. This is the most hawkish scenario – it will allow the EUR/USD bears to take another step towards 20-year price lows.

The rest of the scenarios are more moderate, but all involve a 50 basis points hike in May and (probably) 50 bp in June. As for the future prospects, the regulator can leave room for maneuver, "tying" the pace of monetary policy tightening to the dynamics of inflationary growth.

Based on this, the question follows: is a corrective growth of EUR/USD possible even in the event of a 50-point rate increase? Certainly, it is possible. The fact is that the market has wound up on itself quite strongly: over the past few weeks, the hawkish expectations of traders have been growing "by leaps and bounds," thereby increasing the degree of heat. St. Louis Fed President James Bullard added fuel to the fire, who, in fact, proposed raising the rate by 75 points at once at the May meeting. The flywheel of hawkish expectations has been spinning more and more, especially during the last days – as you know, "appetite comes with eating."

That is why the US Federal Reserve may not fully justify these expectations by taking a "moderately aggressive" position. For example, if they raise the rate by 50 points and rather vaguely admit the option of a 50-point increase in the future "depending on the circumstances," that is, depending on the further growth of US inflation. At the same time, the regulator may not mention the option of a 75-point increase at all or even reject it. In this case, buyers of the EUR/USD pair will organize a fairly powerful counterattack, with targets in the range of 1.0660-1.0730.

It would be reasonable to use this corrective growth for opening short positions, with the targets of 1.0550, 1.0500. The fact is that even in the case of its "moderate aggressiveness," the American regulator will still be several steps ahead of the European Central Bank. Consequently, the divergence of the positions of the central bank will not go anywhere.

Let me remind you that the ECB still doubts the advisability of tightening monetary policy in the foreseeable future. In particular, the vice-president of the European regulator, Luis de Guindos, in one of his interviews a few days ago, stated that the ECB Governing Council "did not discuss any predetermined way to raise rates." According to him, much will depend on macroeconomic data in June. At the same time, market expectations are opposite: the first increase is expected at the July meeting, while the ECB should raise rates by 70–90 points by the end of the year.

In addition, the dollar is supported by the external fundamental background. First of all, we are talking about geopolitical tensions in Eastern Europe and around Taiwan, as well as another outbreak of coronavirus in China. The euro, in turn, is under pressure from "its own" factors. These are issues of energy security of the European Union, as well as the risks of stagflation.

All this suggests that it is advisable to use any corrective pullbacks for the EUR/USD pair as a reason to enter sales. The downward targets in the medium term are 1.0550 (if following the results of the meeting, the upward impulse will follow in the area of the 6th figure), 1.0500, 1.0450.

Tips for beginner traders in EUR/USD and GBP/USD on May 5, 2022

Economic calendar for May 5

Today, the focus is on the meeting of the Bank of England, where they expect the fourth consecutive increase in interest rates by 25 basis points. Annual inflation in the UK reached a 30-year high of 7% in March, so the regulator has no choice but to continue tightening monetary policy.

Will the pound sterling react to the news about the rate hike? Possible, but in a local form, in view of the fact that the event is expected in the market.

During the American trading session, data on jobless claims in the United States will be published, where figures are expected to remain unchanged. Thus, if the forecasts are confirmed, then no one will pay attention to the data on applications.

Time targeting

BoE meeting result - 11:00 UTC

US Jobless claims - 12:30 UTC

Trading plan for EUR/USD on May 5

The slowdown of the upward cycle around the value of 1.0636 led to the formation of a consolidation of versatile Doji-type candles. This threatens with new speculative manipulations in the market. For this reason, two possible scenarios should be considered at once.

The first scenario comes from the tactic of a rebound from the level of 1.0636, where holding the price below 1.0600 can restart the sellers' positions. This will cause the price to return to the support level of 1.0500.

The second scenario considers the formation of a full-length correction, where holding the price above 1.0655 can lead to a move towards 1.0700-1.0800.

Trading plan for GBP/USD on May 5

At the moment, most of the recent impulse has been won back, the quote has returned to the boundaries of the earlier amplitude movement. In order for the downward move to get a new round of activity, the quote needs to stay below 1.2450. In this case, the medium-term downward trend will again be prolonged to new price levels. Otherwise, another turbulence is possible within the values of 1.2460/1.2600, which may be facilitated by the results of the Bank of England meeting.