The correction on the indices is deepening further, which is boosting the dollar. However, on Friday, US inflation data will be released, which may change everything.
The correction in the stock indexes continues to deepen, the S&P 500 index is 5% below its recent high. Uncertainty in the markets is adding to the US dollar, which reached its highest values since October 2023. However, on Friday, key information on US inflation will be reported, which can change everything.
Fundamental analysis
Last week, markets absorbed the new reality that US interest rate cuts are on hold indefinitely, helped by US CPI data for March. Following this, US bond yields rose. The yield on the 10-year note hit 4.695% last week, the highest since November 2023.
This week, GDP data will be reported in the US on Thursday. Quarterly economic growth of 2.5% is expected. But the main thing everyone is interested in will be Friday’s data, when the PCE personal consumption expenditure index, the Fed’s preferred gauge of inflation, comes out. It grew by 2.5% year-on-year in February, the current expectation of analysts is that the indicator should grow by 2.6% in March.
Results season is also underway. The results for the first quarter of 2024 will be reported by tech giants Meta (facebook), which will report on Wednesday after the market closes, Microsoft and Alphabet (google) on Thursday, also after the market closes. In the event of a surprise, great volatility can be expected especially on the NASDAQ index.
Technical analysis
The market is under severe pressure due to the assumption that higher interest rates will stay here longer than originally thought. The correction on the S&P 500 index therefore deepened again.
Chart No. 1: S&P 500 on the H4 time frame
The price fell to the value of 4,926, where it is the current support according to the H4 chart. We can also consider 5000 as support. This is a strong psychological value and the market could tend to respect this area. The nearest resistance is the recent swing high, which is at $5,039. The next resistance is at 5,081, where the lower edge of the Fair Value Gap is.
In the next sample, we have the development of the currency pair GBP/USD on a daily chart.
Chart No. 2: GBP/USD on a daily time frame
The pound is moving in a downtrend, holding below the 1.25 resistance, which is a psychologically important value. On the way down, it broke the 1.237 support and it looks like it could fill the Fair Value Gaps that are below this support. Another important support is the swing low at 1.219 and then especially 1.2040, which is the low from October last year. The reason for the pound falling against the dollar is that the Bank of England could start cutting interest rates before the Fed. This would create an interest rate differential in favor of the US dollar.
The euro is also weakening for the same reason. Inflation data were reported last week, which came out as expected in the eurozone. Annual consumer inflation for March is at the level of 2.4% (2.6% last month). Core inflation reached 2.9% (3.1% last month). From the peak of the inflation wave, which reached a level of 10.6% in November 2022, we are slowly getting to the pre-Covid level, where inflation was 1.4%.
Chart No. 3: EUR/USD on a daily time frame
The euro is holding below the resistance, which is at the value of 1.0694. The price could fill the Fair Value Gap, which has a lower edge in the 1.0580 area. A strong support is the swing low at 1.0520.
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