The US Dollar starts the week off with a decline and continues to decline during this morning’s Asian Session. The US Dollar Index this morning is down -0.15% and is only seeing slight gains against the Japanese Yen. The currency is declining against the Euro, Pound, and Swiss Franc. The best-performing currency of the day so far is the Euro, which is increasing in value against all major currencies. The price of the Euro is negatively influenced by recent economic data from last week and yesterday. However, investors will focus on the European Central Bank’s comments on the monetary policy. Investors want to see if the regulators will continue hiking despite the harmful data.
During Monday’s trading sessions, the global stock market continued under pressure from various factors. The volatility triggered throughout the commodity market created by the internal Russian “uprising” resulted in lower investor confidence. The soft commodity category mainly experienced high volatility, making inflation more challenging. The NASDAQ experienced the most significant decline measuring 1.43%. However, analysts also pointed toward profit-taking.
However, the stock market conditions may change after this morning’s comments from China’s Premier. The Chinese politician Li Qiang said China was still on track to reach its annual growth target in the region of 5%. “From what we see this year, China’s economy shows a clear momentum of rebound and improvement,” Li said. As a result, the futures markets look less bearish than yesterday's. However, investors will be looking to see if momentum is sustainable once the trading session opens.
GBP/USD - Recession Fears Continue
The price of the Pound continues to perform relatively well against most currencies as investors continue to price in higher interest rates. However, simultaneously, investors are considering that the UK continues to be at the highest risk of a recession. The GBP/USD is forming a descending triangle trend, meaning the price is forming lower highs but the same lows. As a result, if the Pound is to gain bearish indications due to recession risks, the price will need to decline below 1.26829. Below this level, the exchange rate will form a downward trend and obtain further bearish signals.
The Durable Goods Orders and Consumer Confidence in the United States will influence the price of the exchange rate throughout the day. The economic release will cause some volatility amongst the major currency pairs category. However, the US Gross Domestic Product and the PCE Price Index will be the main price driver. Analysts expect the GDP figure to read 1.4%, which is relatively low but not necessarily negative. Furthermore, analysts expect the PCE Price Index to read 0.3%, slightly lower than the previous month. If the GDP and PCE Price Index increase than expected, the Dollar may find support as investors price in a 0.50% hike. Whereas investors remain uncertain whether the Fed will hike on two more occasions while inflation is declining.
Technical analysis still needs to provide a clear picture of the next trend. Therefore, traders should be cautious of volatility in either direction. The exchange rate price is trading within the neutral zone of the regression channel and is at a “resistance flipped to a support level”. Therefore, both a bullish and bearish trend is possible.
Dow Jones - Investors Focus on GDP and PCE Price Index
The Dow Jones has been the worst-performing US index of 2023 so far. In 2023, the index has only risen by 1.75%, much lower than the S&P 500 and the NASDAQ. However, many questions have arisen about why Dow Jones performed better than its competitors during yesterday’s stock market decline.
This is mainly due to the Dow Jones’ link with “defensive stocks”. Defensive stocks tend to hold their value or even increase during poor market conditions. The Dow Jones has four defensive stocks within the index, including Procter and Gamble, which weigh 2.90%.
Tomorrow, the Fed will publish the results of the annual stress tests for the leading US banks, which can shed some light on how negative hikes are for the economy. This year, they are of particular interest as they allow experts to assess the extent of the negative impact of the recent crisis on the financial system. A total of 23 major US lenders will be tested, including Citigroup, Bank of America and J.P. Morgan. Most analysts assume that organizations will demonstrate a high level of capitalisation, allowing them to withstand possible economic shocks in the future successfully. The report can also influence the price movement of the Dow Jones, GDP data, and PCE Price Index. Indications of higher interest rates can potentially cause a decline.
Summary:
- The US Dollar Index this morning is down -0.15% and is only seeing slight gains against the Japanese Yen. The best-performing currency of the day so far is the Euro, which is increasing in value against all major currencies.
- The Chinese politician Li said China was on track to reach its annual growth target in the region of 5%.
- The GBP/USD forms a descending triangle but may obtain further bearish indications if the price declines below 1.26829.
- The Gross Domestic Product and the PCE Price Index will be the main price driver for the Dollar and Stocks.
- The Dow Jones performs better than other US Indices due to defensive stock exposure.
