S&P 500 stages a massive intraday turnaround on Monday.
Dow Jones rallied over 1,000 points from an intraday low on Monday.
Equity markets are falling again on Tuesday, but the Fed meeting may reduce volumes.
An incredible session on Monday with wild swings and a huge afternoon rally. Stocks opened the session and looked to be carrying on and even accelerating recent losses with most main indices down 4% by the halfway stage of the day. However, some signs of life in risk appetites showed, most notably from Bitcoin as it went positive for the day. This rally then spread across most equities and indices.
S&P 500 (SPY) Stock News
We put the majority of the price action yesterday down to two main factors. Firstly, position closing ahead of the Fed meeting, starting today, and a massive earnings week. Many commentators are attributing this move to a buy-the-dip philosophy, and that may have some credence, but the lack of follow through so far in Europe this morning is giving that argument less strength.
We have two major focuses this week to make investors reduce positions and wait. First, the Fed meeting is more interesting than usual given the economic backdrop and market action in 2022. Does the Fed hold the line of its recent hawkish tilt, or have markets unnerved some Fed members? Recent PMI data and consumer sentiment data are weakening. Second, this is the most important week on the earnings calendar. There are 104 companies from the S&P 500 (SPY) (SPX) reporting this week. Notably, Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), General Electric (GE), McDonalds (MCD), Caterpillar and Chevron (CVX). A broad spectrum from tech to oil to consumer. This will give a broad picture then not only of company outlook but the general economic outlook. No wonder then that traders are reducing positions ahead of the data.
S&P 500 (SPY) Price Forecast
Yesterday was the first day since June 2020 that the S&P 500 (SPY) has opened below its 200-day moving average. This led to technical selling, which accelerated as the session wore on. Key support at $428 saw more stops likely generated below, and the price accelerated yet again. However, eventually that led to exhaustion and the price had only one option: to recover.
However, a key sign is the lack of volume behind the afternoon recovery. The majority of volume was triggered on the fall during the first half of the session. The rally was on light volume. This adds to our thesis that the recovery was merely based on exhaustion and not a genuine buy-the-dip recovery. Witness the SPY 15-minute chart below. The point of control was at $428, i.e. price with the highest volume. Above $430 there was a very low level of volume.
S&P 500 (SPY) chart, 15 minute
The daily chart shows the significance of that $428 level. This is the low from October, the last significant low of the current long-term uptrend. A break lower creates a new low and so a new downtrend. This makes it a huge level to hold. Holding also puts in place a bullish double bottom. $428 then is our pivot. Yes, we did spike lower, but the close is the more significant. Closing below $428 will see more losses and a move to $404 in our view. The longer $428 holds the more power bulls gain and the more likehood of a sustained bounce. That will bring the 200-day at $442 as the next key resistance.
Despite falling on Friday, the AUD/USD is up in the week by 1.34%.
Sentiment fluctuated negatively in the last hour, dragging the AUD/USD lower.
AUD/USD Price Forecast: A daily close below the 20-DMA could pave the way towards the YTD low below 0.6850.
The Aussie dollar is struggling at the 20-day moving average (DMA) and is losing the battle as the AUD/USD looks forward to resuming the prevailing downtrend, as the 50-DMA crosses below the 100-DMA, further confirming the bias. At 0.7030, the AUD/USD reflects the greenback’s strength as sentiment turned sour.
Sentiment fluctuated negatively in the last hour, dragging the AUD/USD lower
Earlier in the day, Wall Street opened higher, influenced by the positive mood carried on from the Asian and European sessions. The People’s Bank of China (PBoC) rate cut to the 5-year Loan Prime Rate (LPR) from 4.60% to 4.45% was cheered by investors, a signal that Chinese authorities would keep supporting the economy, despite zero-tolerance Covid-19 restrictions. Nevertheless, the mood shifted in the last hour.
During the week, the Australian dollar benefitted from positive employment data, despite that the Wage Price Index (WPI) rose lower than estimations. However, the Full-time employment crushed expectations, and the Unemployment Rate down ticked, lifting the AUD/USD above 0.7070s, weekly highs.
On Friday, the story is different, as risk-aversion, which kicked in since Thursday’s though was ignored by FX market players, is taking a toll on the AUD/USD, sending the major tumbling below the 20-DMA and threatening to open the door for a move towards 0.7000.
On the US front, an absent economic docket, which witnessed earlier in the week a parade of Fed speakers, is not doing much for the greenback, which is strengthening in the session as reflected by the US Dollar Index up 0.26%, back above the 103.000 mark.
AUD/USD Price Forecast: Technical outlook
The AUD/USD is still downward biased, despite Thursday’s rally, which lifted the pair from below 0.7000s towards weekly highs. A Friday’s daily close below the 20-DMA at 0.7039 would expose the major to selling pressure.
Therefore, the major’s path of least resistance continues downwards. The AUD/USD first support would be 0.7000. Break below would expose the 0.6900 mark, followed by the bottom band of the Bollinger band’s indicator at 0.6850 and then the YTD low at 0.6828.
The Fed is all set to correct the errors of their past as rates march north
US Dollar moves may outweigh strong fundamental principles for AUD
The Australian Dollar has one of the preferred fundamental backdrops of any currency in the world, but it means absolutely nothing right now. All focus is on the US Dollar and the Aussie is being swept up, or down, in the vacuum.
The Federal Reserve made a policy error in 2021 and is scrambling to correct that misjudgement. As a result, markets are hurtling toward their reckoning.
The fundamental snapshot for the Aussie reads like this:
Australian unemployment rate is at 3.9%, 48-year lows
The RBA is hiking. The speed of rate rises is the only uncertainty.
Year-on-year PPI is 4.9% and CPI is 5.1%, so there’s not too much pressure coming down the pipe compared to other G-10 nations
Retail sales data beat estimates, +1.6% for March
Trade balance beat estimates, AUD +9.3 billion in March, commodity prices are booming across the complex
Public and private debt levels are high, but below most developed economies as a percent of GDP
Bond yields have a healthy spread over most G-10 peers
The terms of trade are at generational highs (see chart below)
Essentially, the longer the Aussies stays low, the bigger the benefit to the domestic economy.
A source of uncertainty is the Federal election that is underway. There will be very little policy change if either of the two major parties wins a majority. That race is between Labor and the Coalition (Liberal/National).
However, a hung parliament is a possibility due to the number of independent candidates that have been polling well. A hung parliament will make it difficult for any significant legislative changes over the following 3-years.
AUD/USD is being driven by a US Dollar that has been strengthening against most currencies.
This is due to the Fed playing catch up on policy that they left too loose for too long, allowing the inflation genie out of the bottle. As a result, the US is staring down a recession in order to quell rising price pressures.
A possible saviour for the Fed could be the easing of global supply chain bottle necks. For that to happen, the Ukraine war would need to find a hasty resolution and China would need to abandon their zero-case Covid-19 policy.
Unfortunately, the war doesn’t appear to be ending anytime soon. A Chinese government official recently publicly question the merit of the countries zero-case policy. He has disappeared from view.
The ball is in the Fed’s court and consequent US Dollar strength seems to be the flavour of the day, for now.
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter
Retail Sales (AUD, GMT 01:30) – Final Australian sales for April should fall to 1% m/m from 1.6% m/m.
Core PCE Price Index (USD, GMT 12:30) –US personal income rose 0.5% and spending climbed 1.1% in March after respective gains of 0.7% (was 0.5%) and 0.6% (was 0.2%). January income rose 0.2% (was 0.1%) and spending bounced 2.0% (was 2.7%). PCE deflators, the FOMC’s favorite, posted a steep 0.9% headline gain versus 0.5% previously.
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