Hello traders ! Likewise I will be sharing my personal weekly sentiment analysis to get a feel of the global markets and risk appetite.
SPX
Starting with the S&P 500, which is a general way to gauge risk sentiment in the global markets. The SPX recently confirmed the inverse head and shoulder pattern as it breaks the neckline. The SPX had been in a bullish trading session for the last several trading sessions and was still looking strong. With last week’s PCE showing easing inflation, it does put more emphasis on market expectations of an interest rate cut by the FED, hence being positive for risky assets such as the SPX. From a technical aspect, the SPX seems to want to try to test the 4200 high from last February, and a further break above the level could signal even more risk appetite in the global markets.
BOND YIELDS
Looking at the US 10-year bond yields, yields had been dropping from the last several trading sessions, however, the 3.33% level still holds. From a broader perspective, the US 10Y is still in a large trading range with major key levels at 4.25% and 3.33%, respectively. While the dropping yields do signal a rising demand for treasury bonds, this could be driven by market expectations of future interest rate cuts by the FED as inflation is showing signs of easing.
If we look at the bond yield curve between the 10-year bond yields and the 2-year bond yields, we can still see an inverse yield curve in the broader picture. With the inverse yield curve still in tact, it does give more negative bias to risk assets such as equities.
VIX
Next, if we look at the VIX, which gauges the fear level in the markets, the VIX does really show a dropping level of fear in the markets, and with the VIX being below the 20 level, it also shows rising risk appetite, which can be positive for risk assets such as equities.
ECONOMIC DATA
Looking at the economic calenda, traders are faced with quite a busy week ahead as several key economic data are being release. This week focus will be on the US jobs opening, unemployment, and NFP. While other economic data we have the RBA rate decision, CAD unemployment rate and balance of trade, and US PMI.
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Interest Rate
Looking at market expectations of the FED’s monetary policy, we can see how the market is pricing in a rate cut from July until the end of the year. Such market expectations do bring quite a negative bias for the USD.
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CONCLUSION
From several financial metrics, the market does hint at a rise in risk appetite, which can be positive for risk assets and risk currencies. Currently, USD has a bearish bias with falling US bond yields and market pricing in interest rate cuts starting in July. Therefore, trading opportunities could be presented in the majors with sentiment against the USD.