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Australian dollar edges higher after mixed confidence dataThe New Zealand dollar is showing limited movement on Wednesday, trading at 0.6060 in the European session. Like most major central banks, the Reserve Bank of New Zealand has been waging a long and tough battle against inflation by raising interest rates. CPI fell to 6.0% in the second quarter, down from 6.7%. That's certainly good news, but let's remember that inflation is still rising sharply and is much higher than the RBNZ's 2% target. The central bank is also concerned about inflation expectations, which can become embedded when inflation is high and translate into even higher inflation. Wednesday's 2-year inflation expectations release showed a rise to 2.83% in the third quarter, up from 2.79% in the second quarter. One-year inflation expectations fell to 4.17% in Q3, down from 4.17% in Q2. The data indicates that inflation expectations remain high, and that perception could make the life of policy makers more difficult in the fight to bring down inflation. The RBNZ has a long way to go before inflation falls to the 2% target, and that will likely mean further rate hikes unless inflation levels fall sharply. The RBNZ held rates at 5 .50% in July and meets next on August 16th. China is experiencing a bumpy recovery, and that is bad news for the global economy. Commodity currencies such as the New Zealand dollar are sensitive to Chinese economic releases and a soft Chinese trade release on Tuesday sent NZD/USD lower by as much as 80 basis points. The bad news continued on Wednesday as China's CPI for July declined by 0.3% y/y, down from 0.0% in June and just above the consensus estimate of -0.4%. This marked the first decrease in CPI since February 2021 and points to weakness in the Chinese economy, which will likely mean less demand for New Zealand exports, a negative scenario for the New Zealand dollar. NZD/USD continues to put pressure on support at 0.6031. Below, there is support at 0.5964 0.6129 and 0.6196 are the next resistance lines
by OANDA
GBPUSD: The beginning of the end?I'm expecting full on GBP weakness over the coming weeks, regardless of what happens with the dollar. We've broken below the months of ascending trendline and so far failed to break back above, we have a beautiful bearish engulfing candle on the 4hr close from Friday. I get this pair wrong a lot (because I live in the UK and can see a car crash happening in slow motion...), so will definitely not be jumping in. We have big US CPI data on Thursday at 13.30 GMT, if inflation figures are worse (lower) than forecast then this will be good for the GBP in the short term - however I'm thinking that the best will happen is a failed retest of the trendline and I'm thinking we're starting the move back down - just deserts for how the BoE have performed imho.
Short
by Finchcliffe
EURUSD: Still seeing some strength hereEven writing this I’m thinking it could be a crazy idea with USD strength in play, but let’s see... I think we’ll see some early weakness from the USD before a momentum shift that will see DXY reverse up (maybe by end of the week). I think the EURO is still looking strong, bouncing back from the falling following the ECB rate hike pause. ECB are hawkish around further hikes and USD CPI numbers this week may indicate a pause is coming from the FED, this idea may have played out by then. I’ll be tightening my SL at 13.30 GMT this Thursday. So for now looking to go long provided we breakout and retest the falling trendline on the daily from the 1.275 high. We’ve been in a strong uptrend for months and I think the moves in the next few weeks could start to show reversal back down, but for now we still have higher highs and higher lows, support held nicely last week and had confluence to not break the 100 and 200 EMA on the daily, so I'm still bullish with this one for now. I’ll hopefully be tp’ing around 1.124 to see if we get a double top or continuation up, which would bring the 1.14 centre line of the rising channel quickly into play (which could well happen if the US CPI is better / lower than expectation).
Long
by Finchcliffe
Weekend trade reportLast week we achieved the following results. 3% overall. The automatic trades did not do as well. The manual trades closed with profit. At the moment only this trade is open: Open Date Symbol Action Open Price SL (Price) 08.04.2023 15:02 EURCHF Buy 0.96149 0.95489 In the coming weeks, fewer trades will be introduced due to the holiday period. News that stood out this weekend: Container company AP Møller-Maersk is gloomy about the outlook of the global economy. The company expects global demand for containers to fall by 1 to 4 percent this year. Previously, the company expected a contraction of between 0.5% and 2.5%. The demand for containers is seen as a good indicator of the health of world trade. Maersk warns that a possible recession in the West and China's struggles since the pandemic will have an impact on container shipping in the second half of this year. Industrial companies are reluctant to purchase new stocks, which means there is less to ship. This will take place in the autumn at the fair. But with this news, the increase in metals will also increase again. Risks must be avoided. We will take a fixed position in gold or silver in the autumn where we will hedge our currency risks. Our rationale is supported by the FED meeting. In it, the fed governors stated that US interest rates may not yet reach their highest point, now that figures on the economy in the United States do not yet show a clear effect. Michelle Bowman, governor of the Federal Reserve, said this at a meeting in Kansas on Saturday. Last month, the Fed raised interest rates to an all-time high of 5.25%-5.50%, the highest level in 22 years. Since then, the question has been how the Fed will proceed. Fed boss Jerome Powell himself indicated that he would mainly look at the economic data in the coming period, before a choice is made. There may be a pause before interest rates are raised further. Governor Bowman added on Saturday that the recent lower inflation figures were positive, but she still wants to see "consistent evidence" that the price level is indeed on its way to the desired 2%. "I will also look for signs of lower consumer spending and signs that the labor market is becoming less tense." In addition to positions in metals, it will also be examined whether a position against the Dollar can be taken given the economic figures that will have a negative impact on the Dollar. As we started our holiday season, so did the news. For the coming week, these are the news items: Mon Aug 7 Tue Aug 8 Wed Aug 9 3:30 CNY CPI y/y -0.5% 0.0% 5:00 NZD Inflation Expectations q/q 2.79% Thu Aug 10 14:30 USD CPI m/m 0.2% 0.2% USD CPI y/y 3.3% 3.0% USD Core CPI m/m 0.2% 0.2% USD Unemployment Claims 231K 227K Fri Aug 11 8:00 GBP GDP m/m 0.2% -0.1% 14:30 USD Core PPI m/m 0.2% 0.1% USD PPI m/m 0.2% 0.1% 16:00 USD Prelim UoM Consumer Sentiment 71.7 71.6 Basically only Thursday and Friday news to keep an eye on. CPI and PPI.
PEPPERSTONE:XAGUSD
by Probeleg
Crunch time for DXY - Big Day Friday!I never trade DXY but I always have a tab open, I find this really useful when trading many pairs. My current take on the Fed and the US economy is: They were the first to respond to growing inflation Their tightening has led to interest rates of 5.5% (only matched by BNZ) They've hawkishly indicated more hike(s) Consumer confidence numbers this week were strong, in spite of this Jobless claims continue to beat target GDP for June smashed target (2.4% up from 2%, despite forecasted reduction to 1.8%) Inflation is now 2.97%, really low compared to others It's looking very much like a soft landing Whilst at the same time: ECB interest rate held at 4.25% with inflation at 6.4% BoJ interest rate held at -0.1% with inflation at 3.3% Swiss inflation is 1.7% with interest rates at 1.75% BOA interest rate held at 4.1% with inflation at 6% BNZ interest rate held at 5.5% with inflation 6.7% BoE decision this week, currently 5%, +0.25% priced in, but Dovish talk and highest inflation (7.95%) So, I can't fail to see positive fundamentals from the USA, in comparison with almost everyone else? I also think that because they moved fast and got a grip of things, unlike anyone else, they can still afford to hike without screwing their economy, unlike BoE and BNZ for instance who I believe are heading into big recessions - high interest will get to a point where it's as harmful as high inflation and will make the situation worse for the economy. That all said, until the news this week, DXY has been on huge downtrend from it's highs, and it will take something special to break through the descending trendline around 102. If it breaks this could be the start of a reversal if positively retested. Like I say I don't trade DXY, but I've learned to always have it in my sights, you have to be mindful of big DXY shifts as it has an impact on many other crosses (not just USD ones). For instance the big move this week with the Thursday data had a huge effect across the board, fortunately I was expecting it... We have a big indecision doji candle for Friday, however, off the back of last week being positive for the USD and negative for other currencies that make up the basket, I do think the dollar will court the trendline for this week, and we'll probably see a false breakout! On the 4hr I'm seeing short term bullishness, bounce up off the 50% fib for the last bullish move: Whatever, Friday will be a huge day, with NFP and Average Earnings released - I'm expecting DXY will have dropped back a bit by then, I'm expecting good data on Friday, but I don't think it will matter, good or bad it will lure us into a false sense of security and DXY will bounce down, hard with bad data, less so with good data, but regardless - I can't see it punching through on this juncture. As always this is just an opinion, let's see what happens!
TVC:DXYShort
by Finchcliffe
Crunch time for DXY - Friday will be a big day!I never trade DXY but I always have a tab open, I find this really useful when trading many pairs. My current take on the Fed and the US economy is: They were the first to respond to growing inflation Their tightening has led to interest rates of 5.5% (only matched by BNZ) They've hawkishly indicated more hike(s) Consumer confidence numbers this week were strong, in spite of this Jobless claims continue to beat target GDP for June smashed target (2.4% up from 2%, despite forecasted reduction to 1.8%) Inflation is now 2.97%, really low compared to others It's looking very much like a soft landing Whilst at the same time: ECB interest rate held at 4.25% with inflation at 6.4% BoJ interest rate held at -0.1% with inflation at 3.3% Swiss inflation is 1.7% with interest rates at 1.75% BOA interest rate held at 4.1% with inflation at 6% BNZ interest rate held at 5.5% with inflation 6.7% BoE decision this week, currently 5%, +0.25% priced in, but Dovish talk and highest inflation (7.95%) So, I can't fail to see super positive fundamentals from the USA, in comparison with almost everyone else? I also think that because they moved fast and got a grip of things, unlike anyone else, they can still afford to hike without screwing their economy, unlike BoE and BNZ for instance who I believe are heading into big recessions - high interest will get to a point where it's as harmful as high inflation and will make the situation worse for the economy. That all said, until the news this week, DXY has been on huge downtrend from it's highs, and it will take something special to break through the descending trendline around 102. If it breaks this could be the start of a reversal if positively retested. Like I say I don't trade DXY, but I've learned to always have it in my sights, you have to be mindful of big DXY shifts as it has an impact on many other crosses (not just USD ones). For instance the big move this week with the Thursday data had a huge effect across the board, fortunately I was expecting it... We have a big indecision doji candle for Friday, however, off the back of last week being positive for the USD and negative for other currencies that make up the basket, I do think the dollar will court the trendline for this week, and we'll probably see a false breakout! On the 4hr I'm seeing short term bullishness, bounce up off the 50% fib for the last bullish move: Whatever, Friday will be a huge day, with NFP and Average Earnings released - I'm expecting DXY will have dropped back a bit by then, I'm expecting good data on Friday, but I don't think it will matter, good or bad it will lure us into a false sense of security and DXY will bounce down, hard with bad data, less so with good data, but regardless - I can't see it punching through on this juncture. As always this is just an opinion, let's see what happens!
PEPPERSTONE:USDXShort
by Finchcliffe
Is the Market Deluding Itself with a Soft Landing Fantasy?As markets surge against expectations, many are starting to believe that the impossible might unfold. The unusually low fund allocation to equities reflects a market sentiment plagued by fear, yet mega caps are continuing to rise against expectations, making some investors feel left behind. With GDP figures beating expectations and headline inflation plummeting, markets are now starting to believe the soft landing narrative. Can the Federal Reserve, after decades of economic engineering, finally dodge a recession? The bond market remains skeptical. When the yield curve inverted, everyone thought a recession was imminent. However, many overlook the lag between the onset of the inversion and an actual recession. Depending on historical context, a recession can either hit while the yield curve remains inverted or much later, once it has normalised. Thus, relying solely on the yield curve as a recession indicator can be misleading. Nevertheless, history has consistently shown that a recession follows the inversion at some point. However, the human psyche is notoriously impatient. If a predicted event doesn't manifest promptly, the market tends to discount its possibility. Remember, most people buy at tops and sell at bottoms. So, the real question isn't whether a recession will happen, but rather when. Why and When Could a Recession Happen? The Federal Reserve holds significant influence over this timeline. As long as interest rates hover around 5.5%, the recession clock ticks faster. With headline inflation plummeting (orange line) and inflation expectations paralleling this descent (blue line), we must understand what caused inflation initially to gauge where it's headed. The inflationary surge was mostly driven by the excessive expansion of the money supply. Examining the first derivative of the US money supply (M2) shows a rapid expansion followed by a subsequent decline. Comparing the growth rate of the money supply (yellow line) with the CPI year-over-year (orange line) reveals a 16-month lag. If this lag remains consistent, there's significant potential downside to inflation. Yet, the Fed continues to hike rates, despite projections of disinflation and deflation. This is because the Fed's job isn't to predict the future, but to respond to current data. Indicators showing a robust labor market and elevated Core PCE caution against prematurely reducing rates. It would be wise for the Fed to await signs of weakening in these indicators before contemplating rate cuts. This could potentially take a while to materialise, especially since unemployment doesn't seem poised to weaken in the immediate future. Unlike previous business cycles, the current situation stands out due to the Job Openings and Labor Turnover Survey (JOLTS) data. There remains a significant number of job openings for every unemployed individual. This bolsters the resilience of the labor market, making rate cuts less probable. Furthermore, the Core Personal Consumption Expenditure (PCE) - a lagging indicator - remains historically high and resilient. Powell has emphasised the Fed's intent to avoid repeating the same mistakes made in the '70s, suggesting we should expect higher rates for longer in order to permanently get Core PCE to 2%. He's also highlighted the relative ease of stimulating the economy out of a recession compared to raising rates, implying it might be more straightforward for the Fed to rein in Core PCE by inducing a recession. Similarly, the government can't afford the risk of the Fed raising rates later on. Considering the government's dependency on low-cost borrowing to manage interest payments on existing debts, higher future rates could pose a big challenge. Fortunately, the Fed uses the Reverse Repo (blue line) as a strategic tool to bypass any potential liquidity crisis until they are able to finance the government's balance sheet (orange line) with cheap debt once again. Given that interest expenses are nearing 1 trillion USD, the Fed will inevitably have to cut rates to zero and initiate Quantitative Easing (QE) in the future. Remember, the sole limitation to Keynesian economics is inflation. Hence, it's logical for the Fed to avoid risking a resurgence of inflation. In essence, a recession might be essential for the Fed's future assistance to the government. Deciphering the Stock Market's Puzzle Despite Powell's frequent emphasis on a 'higher for longer' stance, the market remains skeptical. This is alarming, especially as the full implications of a 5.5% rate haven't been fully experienced by the economy. Once they manifest, job openings will plummet, unemployment figures will surge, and the 'soft landing' illusion might crumble. Historically, such scenarios are common when real rates reach unsustainable levels. Fortunately for investors, there seems to be room for the AI bubble to continue. Markets typically peak about a month before a sustained increase in unemployment. Hence, forward-looking unemployment indicators like job openings, initial claims (blue line), and continued claims (orange line) are crucial for those wishing to divest before a potential market downturn. In the current scenario, it might be wise for investors to stay away from higher-risk assets like small caps and cryptocurrencies. Historically, these haven't performed as well as mega caps during liquidity crunches. Investors might want to reconsider taking on additional risks unless there's a sustained surge in global liquidity (yellow line). Conclusion: A Time for Caution and Opportunity In conclusion, even though a recession seems inevitable, mega caps may continue their upward trend until the labor market reveals signs of distress. Therefore, it's crucial for investors to closely watch leading unemployment indicators and central bank balance sheets to ensure they're well-positioned for both the upcoming market downturn and the subsequent recovery. Disclaimer: This article is intended for informational purposes only. It is not intended to be investment advice. Every investment and trading move involves risk, and you should conduct your own research when making a decision. Past performance is not indicative of future results.
NASDAQ:NDX
by ingeforberg
EURJPY in Focus: ECB Hikes and the BoJ’s Yield Curve ControlChristine Lagarde's remarks about an open-minded ECB, coupled with a robust labor market and persistently high inflation in the eurozone, continue to provide the ECB with reasons to lean towards hiking. While headline inflation may be trending downwards, core inflation remains steadfast in the eurozone. Following the meeting on July 27, the ECB raised interest rates by 25 basis points, elevating the key interest rate to 4.25%—its highest level since 2008. Interestingly, the U.S. seems to be leading the way in this regard. Inflation and core inflation peaked earlier in the US, and the Federal Reserve has been raising rates more rapidly than the ECB. Given that the EU's inflation rates remain higher than those in the US and that the unemployment rate in the EU is still low, further hikes by the ECB appear plausible—especially considering that the U.S. continues to hike, albeit at a more advanced stage. Last week, the Bank of Japan (BoJ) garnered attention by widening its yield curve control band, signaling a move towards policy normalization. Yet, markets remain skeptical. The subsequent whipsaw move placed the USDJPY pair at levels higher than those before the announcement. The yield differential between the EUR and JPY interest rates exhibits a positive relationship, with the EURJPY appreciating as the yield gap widens. With the previous yield differential increase resulting in a 21% rise in the EURJPY, the currency pair's current 14% ascent seems to have room to grow further, particularly given the larger yield difference compared to past instances. However, it's worth noting the 1999 – 2000 period, where the yield differential increased, but market reactions lagged significantly. From a technical perspective, we observe the EURJPY breaking out of a 30-year symmetrical triangle, often interpreted as a bullish continuation signal. Upon closer examination, the Relative Strength Index (RSI) indicates that the market is not yet oversold, and the moving average cross still favours upward trajectory. In conclusion, the ECB's potential inclination towards continued hikes, combined with market skepticism over the BOJ's recent moves, could lead to a stronger EUR and a softer JPY. A suitable strategy to capitalize on this view might be to take a long position in CME EURO/JAPANESE YEN Futures, quoted as Japanese Yen per Euro Increment. Entering at the current level of 156 with a stop at 152.5, and a take profit at 168, would provide a reasonable risk-reward ratio. It's worth noting that each 0.01 Japanese yen per Euro increment move equals 1250 yen. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com
Long
by inspirante
XAUUSD (Gold): Feel confident selling nowBeen watching Gold for days, trying to work things out. I think we'll see another push up from DXY following FOMC hawkishness last night, it's dancing around the 50% Fib retracement from the last move, this would be positive for gold. With gold, I think we just got a local double top, but generally struggling at current levels, after failing to make a new high, AUD export data not great, also linked to gold. I'm expecting an initial fall down to around 1937 (then could move further back to 1910 / 1900), but does need monitoring closely, as has been super volatile and overall direction still unclear to me atm from here. I think a DXY push will see me hit this initial TP and then let's see what happens from there... I'll wait for NY session to give me more clues
OANDA:XAUUSDShort
by Finchcliffe
12
🔥 Bitcoin FOMC Bullish Reaction: Wait For ConfirmationThe FOMC meeting has just concluded, and the FED has raised the interest rates with 25 basis points. Since the initial reaction is bullish, I'd like to explore the idea that we're going to see a strong switch in trend from this point onwards. The dotted diagonal resistance is currently the main area that BTC has to break through. Be patience for the break out before considering a bullish entry. Target at the July highs, stop just below the resistance line.
COINBASE:BTCUSDLong
by FieryTrading
11
AUD Bucks Trend after Fed Hikes Rates to 22-Year High The Federal Reserve has decided to increase interest rates by 25 basis points, reaching a range of 5.25% to 5.50%, marking the highest level seen in 22 years. Market participants widely anticipated this move as the Fed resumed its tightening campaign. In their statement, the Fed expressed a positive outlook on economic growth, acknowledging that economic activity has been expanding at a moderate pace, which is a subtle improvement from the previous characterization of "modest" growth. The focus on consumer prices remained, with the Fed emphasizing that inflation continues to be elevated, and policymakers will closely monitor the risks it poses, mirroring their assessment from the previous month. Following the announcement of the Fed's decision, the U.S. dollar retreated across the board. This movement in the dollar contributed to a boost in gold prices and an immediate focus is now on the $1,973 minor resistance and $1,978 further above. An exception to the general trend is the Australian dollar, which bucked the trend after data revealed that domestic inflation slowed more than expected in the second quarter. This decrease in inflation reduced pressure on the Reserve Bank of Australia to implement further policy tightening measures. The data showed that Australia's consumer price index rose by 6%, a deceleration from the 7% recorded in the first quarter and below the market's expectations of 6.2%. Consequently, the Australian dollar weakened to approximately $0.676.
by BlackBull_Markets
EUR/USD quiet ahead of Fed decisionThe euro is showing limited movement for a second consecutive day. In Wednesday's European session, EUR/USD is trading at 1.1063, up 0.07%. The Federal Reserve meets later today, and it's close to a certainty that the Fed will raise rates by 0.25%, which would bring the Fed Funds rate to a range of 5.25% to 5.50%. The FOMC will not be releasing any economic forecasts, which means investors will have to comb the rate statement and Jerome Powell's follow-up press conference for clues about future rate policy. The money markets remain confident that today's rate hike will be the last in the current tightening cycle, which is a more dovish stance than what we've been hearing from Powell & Co. The Fed has reiterated that although inflation is heading in the right direction, it remains too high and more work needs to be done to bring inflation back to the 2% target. Powell does not want the markets to become complacent about inflation, and for this reason, he is unlikely to close the door on future rate hikes, even if he hints at a pause after today's expected increase. We can expect Powell to stick to the well-worn mantra of basing future rate decisions on economic data, in particular inflation and the strength of the labour market. The ECB will announce its rate decision on Thursday, and like the Fed later today, it's a virtual certainty that the ECB will raise rates by 0.25%. What happens after that? The minutes of the June meeting, released earlier this month, signalled that a September hike is a strong possibility. Members noted that "monetary policy had still more ground to cover" and "the Governing Council could consider increasing interest rates beyond July, if necessary." ECB policy makers will make their rate determinations based on economic data, but that doesn't mean the decision will be clear-cut. The eurozone economy is struggling, which would support a pause. At the same time, inflation dropped to 5.5% in June, which is almost triple the ECB's target of 2%. Inflation remains the ECB's number one priority, which could mean another rate hike in September unless there is a sharp drop in inflation or a serious deterioration in economic growth. EUR/USD is testing resistance at 1.1063. The next resistance line is 1.1170 There is support at 1.1002 and 1.0895
by OANDA
Aussie slips as inflation falls, Fed expected to hikeThe Australian dollar is in negative territory on Wednesday. In the European session, AUD/USD is trading at 0.6758, down 0.49%. The Aussie fell as much as 0.90% earlier in the day but has recovered some of these losses. Australian inflation declined more than expected in the second quarter, sending the Australian dollar lower as pressure has eased on the Reserve Bank of Australia to raise interest rates. Headline inflation rose 6% y/y in the second quarter, down from 7% in the first quarter and below the consensus estimate of 6.2%. June monthly inflation dipped to 5.4% y/y as expected, below the May reading of 5.5%. The RBA Trimmed Mean CPI, a key gauge of core inflation, fell to 5.9% y/y in Q2, down from 6.6% in Q1 and just below the consensus of 6.0%. The positive inflation data was spoiled somewhat by services inflation, which accelerated to 6.3% in the second quarter, its highest level since 2001. A key factor driving up services inflation was higher rents, according to the Australian Bureau of Statistics. The RBA meets on August 1st and investors have lowered the odds of a rate hike following the positive inflation report. The probability of a rate hike has fallen to 31%, down from 41% prior to the inflation report, according to the ASX RBA rate hike tracker. The RBA will release updated economic forecasts at the meeting, and investors will be especially interested in the inflation projections. What happens after August? An extended pause is the RBA's preferred move, but that will likely require inflation to continue heading lower toward the 2% target. Otherwise, the RBA will still have work to do on the inflation front and would likely have to continue tightening rates. The Federal Reserve is widely expected to raise rates at Wednesday's meeting, and investors have priced a hike at close to 100%. This would bring the benchmark rate to a range of 5.25% - 5.50%. Investors expect a pause in September but the Fed has signalled another rate hike after Wednesday's meeting. The Fed's rate policy will depend to a large extent on inflation levels and the strength of the labour market. AUD/USD is testing support at 0.6767. Below, there is support at 0.6687 There is resistance at 0.6811 and 0.6891
by OANDA
Stocks, Rates and Inflation: Assessing Risks and OpportunitiesOver the last year, there have been increasing concerns about threats to the US and global economies, mainly due to all the rate hikes from the Fed and other central banks. However, these fears have definitely not played out, as consumer spending and business hiring have shown surprising durability in the US, despite rate hikes and inflation. Several factors explain the stock rebound since mid-2022: - Bearish positioning left room for a short squeeze as negative expectations didn’t play out at all. Attention has returned to quality large-cap technology firms leading in AI development like Google and Microsoft, as their innovations promise productivity gains that support growth. - Ongoing passive investing inflows, corporate buybacks, past fiscal stimulus, and excess savings, the Fed and Treasury generating shadow liquidity, China and Japan keeping rates low and stimulating, the massive deficits of the US government (investors know the US is essentially ‘broke’). - Inflation coming down is also boosting stocks, as stocks are mainly valued based on inflation, not interest rates. - The Fed might have finished its hiking cycle or might have one last hike left. Current rate expectations are indicating that rate cuts will come by early 2024. While earnings seem to be plateauing from peak levels, profitability remains healthy overall. GDP growth remains positive and revised higher, the US economy keeps adding jobs and the unemployment rate remains at record lows. Global challenges persist, as supply chain disruptions and inflationary pressures from the Ukraine war might come back at any time, despite having significantly subsided. Demographic trends of aging populations in developed countries also drag on labor force expansion and economic growth. High debt loads worldwide likewise limit stimulus options without leading to inflation or instability. While inflation has moderated, it remains elevated and sensitive to many factors, from geopolitical instability to climate change. More concerning, inflation has eased without a clear link to the Fed’s policy tightening. It’s improbable that the Fed hikes were the ones that pushed inflation from 9.1% down to 3%, as rate hikes act with long and variable lags. This is raising doubts about the Fed, it's forecasting, and its monetary policy’s effectiveness in controlling inflation over the long term, especially as their current super-tight interest rate policy could lead to catastrophic deflation and recession. Given rising recession risks, the Fed will likely be forced to reverse course and start cutting rates by the end of 2024. This policy whiplash carries risks of its own, as we currently seem to be heading toward a deflationary shock, which might be followed by another inflationary wave. With massive deficits, the Fed also faces constraints from high-interest costs on debt even as its policies try to restrain growth and inflation. The economy isn't a simple dial the Fed can turn on and off. What’s even more concerning, is that the Fed is essentially trying to suppress wage gains and cause unemployment to curb inflation, which is something that could induce an inequality-worsening spiral. In our opinion, a more balanced approach recognizes that moderate wage growth won’t spur runaway inflation, especially as technology evolves work. The policy should prepare workers for automation and AI through training programs, not just reactively responding to lagging data as it is currently doing. The Fed’s constraints highlight the need for creative solutions to complement monetary policy. The economy is a multifaceted system requiring diverse policy responses. With vision and flexibility, emerging technologies like AI have immense potential to broadly uplift living standards. But this requires inclusive policies and acknowledging the economy's dynamism. The future likely holds turbulence, but with strategic foresight productivity gains can be harnessed for the benefit of all. Despite concerns over rising rates, the fundamental backdrop remains favorable for stocks. Many investors have grown excessively bearish and underestimate the market's upside potential. Sentiment and positioning remain bearish and cautious, with most investors underestimating all the positive headwinds for stocks, especially productivity gains from AI, falling inflation, falling rates, and currency debasement. Crucially, the rally since mid-2022 has not been fueled by leverage, unlike past bubbles. Margin debt levels decreased last year, reducing systemic risk. The market has a strong foundation to build on gains, especially as most unprofitable tech has been clobbered and hasn’t recovered, unlike US tech behemoths. Big tech and AI stocks are leading the way higher, forming a new monopoly built on network effects and immense scale. Their nearly unassailable competitive advantages will drive growth for years to come. Although in the short-term sentiment has turned bullish, hence a 10% correction is possible, we don’t think that a new bear market is in the cards until stocks make new all-time highs. In conclusion, while risks remain, the US economy has proven resilient amid rate hikes and inflation. Productivity gains from AI innovations, coupled with prudent and flexible policymaking, can support continued growth and market gains if properly harnessed. Investors should look through short-term volatility and maintain a constructive long-term outlook.
TVC:DXY
by BitcoinMacro
US500 - Time for consolidation?Hi Traders, we have a busy week ahead. We have 3 central bank interest rate decisions and a few other fundamentals coming up. Week 30/2023 Monday: Purchasing managers' indices DE🇩🇪 , UK 🇬🇧and USA 🇺🇸 Tuesday: ifo business climate index🇩🇪, CB consumer confidence🇺🇸 Wednesday: FED interest rate decision🇺🇸 Thursday: ECB interest rate decision 🇪🇺 Friday: BOJ interest rate decision🇯🇵, CPI DE🇩🇪, PCE core rate 🇺🇸 Some Infos about the Central Banks FED🇺🇸: The Fed is expected to raise rates by 25 basis points to between 5.25% and 5.50% at its July meeting, with traders looking for clues as to whether this will be the central bank's last rate hike of the cycle or whether it will deliver another rate hike at a future meeting that is in line with its own forecasts. ECB🇪🇺: Again, a 25 basis point rate hike is a foregone conclusion. However, the wording will be crucial here. Because currently, a further increase in September is priced in by around 50% of market participants. The other 50% do not expect any further increase. Depending on which way the wording goes, there is definitely a lot of upside or downside potential for the euro. BOJ🇯🇵: The Bank of Japan's interest rate and monetary policy is still expected to remain loose. This could be very exciting, especially after the last correction against the USD. So we can expect at least on Thing... Volatility! From Technical point of view a consolidation in the stock market would not be a surprise. If the SP500 moves back to first Support Level this would be a possible zone for new long entry. But we should wait for the FED and their outlook. Wish you a great Trading week! Team tegasFX
CAPITALCOM:US500
by tegasFX
GOLD (XAUUSD): Your Plan For FED RATE DECISION 🥇 Next week, on Wednesday, we are expecting FED Interest Rate Decision. Here are potential scenarios for Gold: Bullish If the price breaks and closes above 1987 daily resistance, it will be a strong bullish signal. A bullish continuation will be expected at least to 2000 level then. Bearish If the price breaks and closes below 1960 support, it will lead to a further bearish continuation. Next goal will be 1940 Wait for a breakout, that will be your best confirmation. ❤️Please, support my work with like, thank you!❤️
OANDA:XAUUSDShort
by VasilyTrader
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