The S&P 500 and the Nasdaq rose to record highs after inflation data came in lower than expected. The Dow Jones Industrial Average jumped 350 points as investors bet the Federal Reserve may cut rates in September. All three major indices closed at record highs. Tech heavyweights, Nvidia, Apple and Microsoft, all rose. Yields on the benchmark US 10-year Treasury and 2-year Treasury dipped.
SPXUSD (Daily). Breaking out of its all-time high last week, the S&P500 targets the 161.8% Fibonacci extension level of 5490.00. A minor correction is expected up to 5276.00, and 12 out of the last 13 daily candles show strong bullish momentum.
US Inflation eases
April’s consumer price index rose 0.3%, slightly less than expected, while on a 12-month basis, inflation increased 3.4% in line with economists’ forecasts. It is the first time this year that the data did not come in hotter than expected, increasing the prospect of a Fed rate cut later this year, even though inflation remains above its 2% target.
XAUUSD (Daily). After a month-long break, Gold rose again in May. Although the price did not touch the all-time high of 2430.00 at market close on Friday, it closed above 2400.00 for the first time. Waiting for a resistance breakout or rejection for more confirmation.
WTIUSD (H4). Trading within a small area for 3 weeks, Oil is ready to break out of the pattern. After having 2 Support points and 2 Resistance between 77.00 and 79.50 levels, if price breaks above 79.50, it may head towards the level 80.80.
Despite some positive indicators like company profits, soaring stock prices, and pledges for significant wage increases, Japan's economy is showing signs of fragility. Taro Saito from NLI Research Institute highlights the issue of "stagflation," characterised by minimal growth and high inflation. The economy contracted by 2% annualised in the January-March quarter, with consumer spending declining for four consecutive quarters, the longest since the global financial crisis. This economic stagnation complicates the Bank of Japan's (BOJ) decision to raise interest rates post-stimulus. Although inflation is above the BOJ's 2% target and real wages have been falling for two years, government officials maintain that the economy is on a recovery path, attributing recent weaknesses to temporary factors.
USDJPY (H4). Despite major corrections by 2 intervening actions, USDJPY remains back on track. Based on the line drawn from the 3-week pattern, the pair will most likely continue its bullish momentum as long as it does not have a correction below the 154.30 level.
Europe's macroeconomic outlook appears optimistic, but the potential for sudden destabilisation due to geopolitical factors may be underestimated by markets, according to Luis de Guindos, Vice-President of the European Central Bank (ECB). Despite stock market highs in Europe and the US amid ongoing geopolitical tensions and upcoming elections, the ECB's latest Financial Stability Report highlights significant risks.
EURUSD (Daily). Rebounding in a month and breaking the 61.8% Fibonacci level, the pair is eyeing the nearest resistance at 1.0980. A brief correction to 1.0830 will be the entry point for some buyers.
Fullerton Markets Research Team
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