Bullish Markets Defy Fed Hike, Dow Jones Hits Record 2023 Highs

The Fed added a further 0.25% to their Federal Fund Rate, but how is the latest guidance affecting markets? The overall picture across the global equity markets is bullish and showing a “risk on” appetite, and the Dow Jones has even renewed its 2023 highs. According to economists, the rise in the risk appetite is due to the Federal Reserve’s comments on the recession risks. According to Jerome Powell, despite the restrictive monetary policy, the US will not witness a recession. Furthermore, Mr. Powell said all FOMC members no longer expect a significant decline. 

In addition,  upbeat earnings are supporting the stocks, as are expectations that today’s ECB rate hike will be the last. The Federal Reserve, on the other hand, was very careful not to sound bearish and indicated a further 0.25% rate hike before the end of the year. However, analysts are advising that the market is not pricing further hikes. Investors are not biting the bait considering the lower inflation data and global economic contraction. As a result, the global stock market is experiencing gains across the board. 

However, as a result, the US Dollar Index took a significant hit, declining from 101.33 to 101.09 yesterday and declining this morning. The US Dollar Index is valued against the Euro, Pound, Yen, Krona, Franc and Canadian Dollar. The decline in the Dollar results from the higher risk appetite, and most investors believe the Fed’s policy is at its peak. Though, it should be noted that other major currencies are not seeing significant volatility. However, this is likely to change for the Euro. 

EUR/USD - Investors Await ECB’s Plans for 2023 

The EUR/USD exchange rate is increasing during this morning’s European and Asian sessions. The exchange rate rose 0.25% yesterday and a further 0.32% this morning. The depreciation of the Dollar largely influences the price, while the Euro is experiencing weak price movement in both directions. However, this may change depending on the European Central Bank’s rate decision and analysis of the economy. 

Due to the high inflation rate, particularly the core inflation data, the European Central Bank will likely increase its Main Refinancing Rate by a further 0.25%. However, economists expect the hike to be the last for the EU, considering that the latest PMI data declined significantly. If the European Central Bank sounds dovish and expresses pressure on the economy being seen, the Euro may decrease further. However, if the ECB indicates another hike in 2023, the Euro may continue its bullish price movement. 

Economic data in the European Union is deteriorating much faster than their US competitors. The US Consumer Confidence Index, released yesterday afternoon, rose from 110.1 to 117.0, well above the forecast of 111.8, and reached its highest since July 2021. Again this is signaling a significant increase in household confidence in the economic outlook and a decline in the risks of a recession. However, the data only indicates a lesser need for safe-haven assets such as the Dollar. The better economic data has yet to support the Dollar this week. 

Regarding technical analysis, the exchange rate is switching from a bearish regression channel to a bullish one. However, a bullish channel has yet to fully form. Nonetheless, the price action is forming higher highs. The Parabolic SAR is below the price, and crossovers are pointing upwards. Therefore, signals indicate an upward price movement, and oscillators are yet to signal an overbought price.  However, when looking at the price action on larger time frames, such as the 4-hour charts, the exchange rate is at the neutral level, where the price can form a correction back to 1.0901 or an upward trend back up to 1.1275.

EUR/USD 30-Minute Chart on July 27th

Dow Jones Investors Defy Fed Rate Hike

The Dow Jones, which has generally been underperforming in 2023 in comparison to other US and EU competitors, is on track to increase for a third consecutive week. The Dow Jones was primarily supported by upbeat earnings data from Boeing, which increased in value by 8.72%. From the 30 stocks within the Dow Jones, 11 stocks ended the day lower, with Microsoft experiencing the most substantial decline. The three best-performing stocks were Boeing, 3M, which rose by 2.56% and Home Depot, which rose by 1.37%. 

Throughout the day, earnings from Mcdonald's and Intel will largely influence the index. The most influential release will be Mcdonald's, which holds a “weight” of 5.43%. Whereas Intel will have a lesser effect, only holding a “weight” of 0.63% and therefore less influential. In addition, as mentioned above, the index was supported by investors pricing in a “pause” from the Federal Reserve for the coming months and an end to the EU’s hiking policy. 

Over the past 12 months, Boeing has been one of the worst-performing companies in Earnings Per Share, reviews, supply chain disruptions and company revenue. In the previous quarter, Boeing missed its earnings per share expectations by 20% and the revenue also read lower than the last quarter. Nonetheless, the stock had risen 11% this year before yesterday’s earnings. Yesterday’s quarter earnings data was the first time the company released higher-than-expected earnings and revenue in over a year. The earnings per share read 8.24% higher than expectations, and the revenue was 6% higher. As a result, the stock saw a significant climb. 

Trend indications are active, with the index's price witnessing higher bullish momentum during this morning’s European session. However, investors should note that the index is at a 76-week high and is at a previous resistance level on the relative strength index.

Dow Jones Daily Chart on July 27th

Summary:

• The Fed added a further 0.25% to their Federal Fund Rate. The global equity market is bullish and showing a “risk on” appetite.
• The European Central Bank will likely increase its Main Refinancing Rate by a further 0.25%. However, economists expect the hike to be the last for the EU, considering the poor economic data.
• Throughout the day, McDonald's and Intel earnings will have a larger influence on the Dow Jones.
• Boeing’s earnings per share read 8.24% higher than expectations, and the revenue was 6% higher.