The US Dollar is again rising, while all equities are trading in the red this morning. The main price drivers are the latest inflation data, the monetary policy and the potential “soft landing”. Goldman Sachs this morning amended their previous analysis on the Federal Reserve and the Monetary Policy. Goldman Sachs previously predicted a rate cut in early 2024; however, the US bank now states the cut will not come under the summer of 2024. Interest rate cuts 12 months away will not likely affect the market this week. However, the fact that analysts are pushing back a pivot negatively impacts stocks.
Another concern for investors is the latest analysis from significant economists in the US advising a “soft landing” is impossible. The outcome of a hard landing is likely to be a decline in the US equities and higher demand for safe-haven assets — for example, Gold, the US Dollar and T-Bills. However, the Federal Reserve continues to advise a recession is less likely than earlier in the year. So far, the Dollar and Bonds have risen due to expectations of further interest rate hikes. The US Dollar Index has risen 0.14% during this morning’s Asian session and now trades at 103.00. However, traders should note that volatility levels increase in both directions as we enter the European Open Market session. If the index declines below 102.85, sell signals may potentially emerge.
NASDAQ Down 4.5% and Still Counting
The NASDAQ has been the worst-performing index of the past two weeks, declining by more than 4.5%. The NASDAQ was also significantly devalued this morning, falling by 0.79% during the Asian session. A 0.79% decline during the Asian session is considerably higher than traditional volatility levels. However, the decline has triggered pending orders judging by the Depth of the Market and, as a result, is correcting by 0.60% so far.
But the main question remains for traders. Over the next five days, how will the NASDAQ be priced?
Regarding technical analysis, the price continues to follow a downward trend even with the uptick since the European Open. The price continues to trade below significant trend lines, moving averages and volume-weighted moving averages. However, smaller timeframes indicate an upward retracement as traders took advantage of the discounted price. If the price declines below $14,999 and $14,958 again, downward signals will arise. For bearish price action, investors will also monitor if larger sell orders appear as the price declines. At the same time, the Depth of the Market can assist traders in determining where the current bullish momentum may be lost.
However, the price is also likely to be influenced by certain fundamental factors. A significant factor will be Chinese data scheduled to be released tomorrow morning. China will release its Yearly Industrial Production and Retail Sales, which will give an important clue on the current economic conditions. If the data is lower than expected, global stocks possibly may experience a further decline. Furthermore, the US will release their Retail Sales data for July 2023 in the afternoon. Again, if the figure is lower than expected, the stock market may experience further sell orders again.
Quarterly earnings reports will also be influencing the equity index this week. Cisco Systems will release its report on Wednesday after market close and Applied Material Inc the following evening. Cisco Systems will be the most influential of the two reports as the stock bears a weight of 1.85%, vs Applied Materials, which holds a weight of 0.98%. The company stock is the 13th most influential stock within the NASDAQ. The stock has been one of the few stocks within the NASDAQ that has performed well over the past week and a half. The stock rose by 1.55% over the past week and on Friday. Analysts expect the company to confirm higher Revenue and Earnings compared to the previous four quarters. If the earnings per share and revenue read higher than expectations, the stock will likely experience a rise and positively influence the NASDAQ.
Investors should be cautious that hawkish Meeting Minutes on Wednesday evening can dampen investor sentiment. Investors continue to fear further rate hikes and pressure on the global economy. Investors are also concerned that the NASDAQ’s top 12 influential stocks have declined in the latest session.
EUR/USD
Since the opening of the European session this morning, the EUR/USD price has been increasing. The price continues to be affected by the support level formed over the past week at 1.09253. If the price rises above 1.09556 and the US Dollar Index continues to decline, the exchange rate can potentially experience further bullish price movement.
The Euro is being supported by the possibility of a further interest rate hike, which is becoming more and more likely. According to the latest survey and reports, officials will likely suspend the interest rate increase at the September meeting. Still, towards the end of the year, they may return to adjusting the parameters by 0.25%. As a result, the Euro is increasing in value against most competitors and not solely the Dollar.
Summary:
- The US Dollar increased in value earlier in the Asian session, and global equities declined. However, price action changes as European traders enter the picture.
- Both the ECB and Federal Reserve are expected to hike at least one more time this year.
- Quarterly earnings reports will also be influencing the equity index this week. Cisco Systems will release its report on Wednesday after market close and Applied Material Inc the following evening.
- Analysts expect Cisco to confirm higher Revenue and Earnings than the previous four quarters.
- Investors are also broadly monitoring tomorrow’s Chinese data and the tone of the Federal Open Market Committee on Wednesday.
