Stock futures were flat in overnight trading on Tuesday as investors turned their attention to the highly anticipated inflation report for March. Dow Jones futures remained unchanged, while S&P 500 and Nasdaq 100 futures slightly increased by 0.04% and 0.07%, respectively.
On Tuesday, the S&P 500 closed with little change, while the Dow Jones Industrial Average gained 0.29% and the Nasdaq Composite lost 0.43%. With Wall Street looking ahead to March’s consumer price index, economists predict that CPI rose by 0.2% in March, which could influence the Federal Reserve’s rate decision in May and result in the cessation of the central bank’s rate-hiking regime.
Investors and traders are keeping an eye on the CPI number, which could cause significant changes in the stock market. Additionally, minutes from the Federal Reserve’s March policy meeting are expected to be released on Wednesday, providing further insight into the central bank’s decision to raise interest rates amid the collapse of Silicon Valley Bank and the turmoil that shook the banking industry. As the first-quarter earnings season begins, investors await reports from JPMorgan Chase, Wells Fargo, Citigroup, and UnitedHealth, which will test the health of the U.S. economy and consumers.
Data by Bloomberg
In the stock market on Tuesday, most sectors remained stable without significant changes. However, the energy sector was the top gainer with an increase of 0.89%, while financials, materials, and industrials followed with gains ranging between 0.59% and 0.85%.
Conversely, the information technology sector experienced the biggest loss with a decline of 1.03%, and communication services also decreased by 0.43%. Consumer discretionary and utilities sectors showed little change, while real estate, health care, and consumer staples sectors had small but positive gains.
Data taken from MT4 VT Markets
Major Pair Movement
The US dollar index fell 0.3%, driven by gains in the EUR/USD and GBP/USD pairs, as the early risk-off sentiment that led to dollar buying retreated despite a rise in Treasury yields. The USD/JPY also rebounded after dropping to 132.97 lows, driven by a rise in Treasury yields earlier in the day. However, a call for policy prudence and patience by Chicago Fed President Austan Goolsbee and IMF’s warning about a “perilous combination of vulnerabilities” in financial markets tempered the Treasury yield rise.
The concerns about the impact of credit tightening on top of monetary tightening remain, as emergency bank borrowing from the Fed remains quite high and bank deposits have only expanded marginally following March’s sharp drop. Wednesday’s US core CPI data will be most relevant, as the expected plunge in the overall year-on-year inflation rate is a function of last March’s post-Ukraine invasion peak in oil versus March’s post-invasion trough. Additionally, the minutes from the Fed’s last meeting will also be released. The ECB and BoE are expected to hike rates at their upcoming meetings, with the BoE having roughly 50bp of hikes by September’s 4.66% implied peak, which still seems weak given the UK’s inflation at 10.4%.
Technical Analysis
EUR/USD (4 Hours)
The EUR/USD bounced back from its weekly low as Europe returned from the Easter holiday, with the pair rising above 1.0900 due to a weaker US Dollar and expectations of another rate hike from the ECB. However, Eurozone Retail Sales data released on Tuesday showed a drop of 0.8% in March, with an annual rate decline of -3%, better than expected. The next crucial report for the region will be Industrial Production on Thursday, with expectations of a 25-basis points rate hike at the May 4 ECB meeting.
Meanwhile, the Federal Reserve is evaluating the potential impact of financial stress on the real economy, and if inflation decreases, interest rates will have to be lowered. The attention is now focused on the release of March’s US Consumer Price Index on Wednesday, with the CPI expected to rise by 0.3% and the Core by 0.4%, followed by the publication of the minutes of the latest FOMC meeting later that day. Despite the rise in US yields, the US Dollar was affected by an improvement in risk sentiment.
From a technical perspective, the EUR/USD price is continuing to rise and has moved above the middle band of the Bollinger band. We have adjusted our support level to 1.0881 as the market is expected to break today with the release of US inflation data. The RSI has risen above 50 (at 57), indicating a potential for further upward movement.
Resistance levels: 1.0935, 1.0968
Support levels: 1.0881, 1.0835
XAU/USD (4 Hours)
Gold is currently struggling to extend its gains beyond the $2,000 threshold after having fallen to $1,981.66 on Monday. This is happening amidst the broader weakness of the US dollar and the better performance of stock markets while looming US inflation figures continue to be a concern. Currently, XAU/USD is trading near its daily high of $2,007.44, as most global indexes trade in the green. The Dow Jones Industrial Average in the United States is up 146 points to trade at its highest level since early January. However, the Nasdaq Composite is down 0.37%.
Market participants are dropping the Greenback ahead of the United States March Consumer Price Index (CPI) which is expected to signal core inflation has ticked higher yearly. A few weeks ago, such an outcome would have triggered speculation of a potentially aggressive rate hike from the Federal Reserve (Fed). However, that is not the case following the banking crisis that unfolded in mid-March in the United States. Following the collapse of two local banks, the central bank has adopted a more conservative stance on monetary tightening, as draining liquidity to tame inflationary pressures has multiple undesired effects.
Meanwhile, concerns about a recession continue to grow due to sluggish macroeconomic data and the unexpected decision by OPEC+ to cut oil output. These factors have fueled a dismal market mood, which seems to be temporarily on pause. However, risk-averse environments hardly benefit the Greenback these days, with Gold making the most of it.
From a technical perspective, the price of XAU/USD continues to rise and has surpassed the $2,000 level, indicating the possibility of a renewed upward trend. The market is currently waiting for the release of US inflation data, causing the Bollinger bands to tighten as the price approaches the upper band. It is crucial to monitor the key support level at $2,000, as a decline below this level may signal a potential reversal. However, as long as this level is maintained, the XAU/USD uptrend will remain intact. The RSI has increased to 59, above the 50 levels, indicating that there is potential for gold to continue to rise.
