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Market Wrap
The S&P500 today makes a new all-time high and ends the week very strong. The Nasdaq has reversed 99% of yesterday’s sell-off and the Dow Jones Industrial Average made a 2-month high and looks likely to test the all-time highs above 35k next week, as momentum is still strong. It was not just the US indices that reversed yesterday’s risk-off moves, the UK FTSE100 is up 1028% today and the DAX is up 1.73% which means it is positive for the week unlike the FTSE.
The lightest quadrant on the S&P500 heat map is from the lower left Financials which include banks like JP Morgan and Bank of America. The financials caught a bid as the US benchmark treasury yields were able to have a positive day after more than a week’s worth of selling.
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The daily chart for the S&P500 shows the 20 and 50 ema’s diverging as momentum builds to the upside. Yesterday’s low found support at the daily 20 ema, so this dynamic support is one to watch and one to use to mitigate your risk.
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The treasuries have found some resistance or maybe the traders took profits ahead of the Fed’s Monetary Policy Report. The 5-minute candle on all US dollar crosses before the MPR hints at someone having either a large punt ahead of the news or a sneak peek and front running. The result was the US dollar reversed the days trend for a short period of time before consolidating. In the MPR, there were hints at upside risks around inflation, which the report states in the near-term have increased. With expectations of inflation returning to target after a period of temporary higher inflation. Lower inflation worries should translate into higher bonds over time, so I am looking to see which previous resistance level now becomes support for TLT.
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At the London open we said that the day looked good for commodities and bad for safe-havens and that the US dollar should drop. This would be beneficial for oil, US dollar crosses like the GBPUSD and with that in mind we were looking for a long on the GBPCAD. But as it’s a Friday we were only looking for a US dollar drop to the recent swing low, for Cable to find the recent swing high on the H1 chart and similar for the GBPCAD. All of which thankfully played out quite well today.
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Oil is up 1.71% but still slightly bearish for the week. The US crude stocks are declining rapidly as the rate of change is the largest 4-week average draw in nearly 40 years. The US Energy Information Administration also said that the demand for gasoline was the highest since 2019. The draw could be that refiners are also using up stocks that they bought when prices per barrel were low, rather than buying in more expensive crude.
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The USDCAD was pushed around by the weakening US dollar today + the strengthening energy markets. Today’s Canadian employment figures were better than expected and strengthened the Canadian dollar.
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On the daily chart for the GBPUSD we reached the target of the daily 20 ema. Whether or not the upside momentum continues is largely down to the US dollar. The UK trade balance was surprisingly good. Total exports of goods, excluding precious metals, increased by £1.3 billion (4.9%) in May 2021, driven by a £1.0 billion (8.0%) increase in exports to EU countries. Total imports of goods, excluding precious metals, fell by £0.5 billion (1.4%) in May 2021 because of a £0.7 billion (3.4%) fall in imports from non-EU countries, which offset a slight increase of £0.1 billion (0.8%) to EU countries.
