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Daily market analysis

Stocks take a breather, currency markets adjust

March 26, 2024

This week witnessed a modest retreat in stock markets, with key indices like the Dow Jones, S&P 500, and Nasdaq Composite pulling back from recent record highs, while the currency market saw nuanced movements amid varying global fiscal policies and geopolitical tensions. Intel and United Airlines faced declines due to regulatory and operational headwinds, respectively, slightly dampening the otherwise strong momentum driven by tech enthusiasm and Federal Reserve policies. Meanwhile, the dollar index experienced a slight dip, influenced by a mix of foreign exchange interventions, regulatory actions in China, and shifts in bond yields that affected major currency pairs such as EUR/USD and USD/JPY. As investors gear up for the release of the U.S. core PCE data, the market remains attuned to potential signals on inflation and monetary policy directions, balancing optimism with caution amid ongoing economic developments.

Stock market updates

Stocks experienced a slight downturn on Monday, initiating a subdued start to the trading week and momentarily pausing the upward trajectory that had propelled Wall Street to unprecedented highs. The Dow Jones Industrial Average retreated by 162.26 points, or 0.41%, to close at 39,313.64. The S&P 500 also witnessed a minor pullback, dropping 0.31% to end the day at 5,218.19. Similarly, the Nasdaq Composite edged lower by 0.27%, finishing at 16,384.47. Contributing to the market’s tepid performance, Intel’s shares fell by 1.7% following reports from the Financial Times about China’s new guidelines that could potentially restrict the use of the company’s chips in government servers. United Airlines saw a more significant decline, dropping 3.4% after announcements of increased scrutiny from the Federal Aviation Administration due to recent safety concerns.

Despite the day’s losses, the broader market remains on a robust growth path, marking its fifth consecutive month of gains and reaching new all-time highs last week. Last week’s rally was particularly strong, with the S&P 500, Dow, and Nasdaq Composite rising by approximately 2.3%, 2%, and 2.9%, respectively. This surge was buoyed by the Federal Reserve’s reaffirmation of its rate-cutting timeline and a sustained interest in tech stocks, driven partly by the enthusiasm for AI technologies. Market sentiment has remained resiliently optimistic, as evidenced by the American Association of Individual Investors sentiment survey, which continues to reflect a positive outlook above historical averages.

However, some market participants expressed concerns over the sustainability of the rally and the prospect of enduring high-interest rates. With the S&P 500 trading at a 33% premium over its 20-year average price-to-earnings ratio, the stage is set for cautious observation. Investors are keenly awaiting the release of the February personal consumption expenditures price index, the Fed’s preferred inflation gauge, for further clues about inflation’s trajectory. Despite expectations of a muted response to the PCE data, the market’s anticipation underscores the ongoing scrutiny of inflationary pressures and their implications for future monetary policy.

Currency market updates

In the currency markets, the dollar index saw a modest decline of 0.19%, as the EUR/USD pair experienced a rebound of 0.27%. This movement came after the pair managed to recoup some of its previous losses, tracing back to a significant Fibonacci retracement level. Contributing factors to the dollar’s pullback included a temporary dip in USD/JPY after Japan’s Ministry of Finance intensified its rhetoric on foreign exchange intervention and measures by Chinese authorities to stabilize the yuan following a sharp drop. Additionally, reports indicated that Chinese regulators are urging banks to expedite loan approvals for private property developers, adding a layer of complexity to the currency dynamics.

The British pound found its footing and began the week on a stronger note after bouncing off a key Fibonacci support level. Meanwhile, currency markets were also influenced by movements in bond yields, particularly as energy prices continued to climb amid geopolitical tensions and Russia’s compliance with OPEC+ production cuts. The interplay between Treasury and JGB yields, alongside speculation about Japan’s monetary policy, offered a nuanced backdrop for the USD/JPY pair, which remained a focal point of investor attention due to potential interventions and the broader implications for yen valuations.

As the week progresses, market participants are bracing for the release of the U.S. core personal consumption expenditures (PCE) data, with anticipations of how it might influence the Federal Reserve’s policy stance. The timing of the data release, coupled with month-end and fiscal year-end flows, especially for the yen, suggests the potential for heightened volatility in currency markets. The prospect of hawkish signals from the PCE data could embolden USD/JPY bulls, despite looming intervention threats. This week also features several Federal Reserve speakers, whose remarks will be closely monitored for any shifts in the central bank’s outlook, particularly in light of recent economic indicators.

Picks of the Day Analysis
EUR/USD (4 Hours)

EUR/USD rebounds amid mixed sentiments and central bank speculations

As the week commenced, the US Dollar’s (DXY) bullish trajectory moderated, leading to a slight retreat to the low 104.00s, despite rising US yields. This adjustment in momentum coincided with a renewed interest in riskier assets, providing the Euro with an opportunity to recover from its approach to 1.0800. Despite the Federal Reserve’s stance on maintaining interest rates to combat inflation, with an eventual rate cut forecasted for 2025, market sentiment, as indicated by the FedWatch Tool, leans towards expecting three rate cuts within the year, potentially starting in June. This outlook is somewhat countered by Federal Reserve officials’ cautious views on rate adjustments, highlighting a complex landscape of inflation control and economic stimulation. With both the Fed and the European Central Bank (ECB) on the brink of initiating easing cycles, possibly in parallel, the medium-term forecasts suggest a stronger Dollar. Yet, the EUR/USD pairing shows resilience, hinting at a complex interplay of economic fundamentals, central bank policies, and investor sentiment, possibly leading to significant currency fluctuations soon.

Chart EUR/USD by TradingView

On Monday, the EUR/USD moved higher, able to reach near the middle band of the Bollinger Bands. Currently, the price is moving slightly below the middle band, suggesting a potential slight upward movement to reach the lower band. Notably, the Relative Strength Index (RSI) maintains its position at 47, signaling a neutral outlook for this currency pair.

Resistance: 1.0866, 1.0911

Support: 1.0827, 1.0785

 Economic Data
CurrencyDataTime (GMT + 8)Forecast
USDCB Consumer Confidence22:00106.9

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