Over the past few days, the market has experienced a decent level of volatility and direction in the market, which may have pleased some traders. However, volatility had declined throughout this morning’s Asian and European sessions. This was expected as we are now getting closer to the Jackson Hole Symposium where it is rumoured the Federal Reserve will make hawkish comments.
This is in addition to the US GDP (Gross Domestic Product) which is being released tomorrow afternoon. It’s not uncommon to have lower volatility prior to major news being released, and in this scenario, both events are expected to influence the USD.
GBP/USD
The GBP/USD pair is currently seeing the strongest decline amongst the major currency pairs. The British Pound is also declining against the Euro, Australian Dollar, and Japanese Yen. The US Dollar Index is still currently higher than the daily market open price by 0.18%. The index has specifically seen strong gains over the past 3 hours.
Even when taking into account today’s decline, the exchange rate still remains higher than yesterday’s price range. Currently, the price seems to be attempting to decline to yesterday’s price.
Traders who are following indicators would have noticed that the price is also very close to experiencing a bearish crossover on the moving averages. In addition to this, the price has dropped below its short-term average price as the Stochastic Oscillator gives a bearish indication.
GBP/USD 1-hour price chart on August 24th.
Most of the latest developments today have been related to the cost of living in both the UK and the US. London’s Mayor, Mr Khan, is one of many who have advised that citizens in the city and within the country will not be able to pay their heating bills or even afford food this winter due to record inflation. The inflation level in the UK is currently at its highest level since early 1980 when the country experienced hyperinflation.
The US has a similar situation on its plate. According to the latest reports, 1 in every 6 US households are behind on their energy bills. This is equivalent to 20 million US homes and this figure is predicted to increase over the coming months. However, many economists do not believe that the Federal Reserve will alter its path unless inflation declines soon.
NASDAQ and the US Stock Market
NASDAQ 6-hour price chart on August 24th.
The price of the NASDAQ, as well as other major US indices, has continued to decline for a third consecutive day. Although the stock market hasn’t opened yet, NASDAQ has not experienced any major price movement outside of trading hours so far. The same goes for the S&P 500 and the Dow Jones.
Over the past week, the DowJones has been the best performing index followed by the S&P500 and the NASDAQ which saw the biggest decline. The DowJones has declined by 3.29%, the S&P 500 by 3.54% and the NASDAQ by 4.57% which is considerably higher.
Looking at the longer-term price movement, the price has seen a strong decline but so far can only be considered as a retracement in the longer term, and a price correction in the short term. The price has now declined to the significant level where the price had previously found support between 20th July and 10th August.
The main earnings report released this week was from Zoom Video Communications. The company saw its shares decline by more than 16% as a result of a weak quarterly report, as well as certain comments from the board of directors. Currently, investor confidence is low and poor earnings simply add more fuel to the fire. According to the company and other analysts, the company is likely to see customers stop using its services as the global lockdowns have been lifted. However, this, of course, cannot be guaranteed.
Lastly, an upward correction in the bond market puts pressure on US stock indices. The popular 10-year US Treasuries yield increased to 3.030% and the conservative 20-year bonds are trading at 3.480%. The stock market will become less attractive if the bond yields continue to increase. The bond and stock market are known to be competing with each other for investments. If bond prices increase, potentially more investors will opt for this safer option.
Comments made by the Fed Chairmen over the next couple of days are likely to strongly influence the stock market in the coming weeks. In addition to this, Nvidia is due to announce its earnings tonight after the US market closes. Nvidia is a component in the S&P 500 and NASDAQ, but not the DowJones.
- 1 in 6 US households are behind on their energy bills.
- The Mayor of London gives a stark warning to UK investors.
- Bond yields increase and further pressure US stocks.
- Nvidia is scheduled to release their quarterly earnings report today.
