Hello traders, and welcome back to my post! As usual, I will be sharing my personal sentiment analysis for the week ahead with the main purpose of getting a feel for the market and risk appetite, which could lead to possible trading opportunities or to establish a bias. .
SPX
As usual, starting with the S&P 500 (SPX), the SPX had been in a strong rally after bottoming in March. The SPX managed to hold above the 4000 price level, its highest level since March. Currently, the SPX managed to bounce from the 4075 support level and is still holding on to the bullish outlook. As the last NFP numbers showing cooling job markets spark a bullish sentiment as what the FED wanted to see for battling inflation back to 2% level,
This week, the US inflation numbers and the FOMC will be the main focus, as if the inflation numbers are declining, it could further spark bullishness in risk assets as falling inflation can be perceived by the market as the beginning of the end of the FED tightening cycle. Such a scenario could make the rally test February’s high near the 4200 key resistance level.
BOND YIELDS
Looking at the US 10-year bond yields (US10Y), the US10Y had been struggling near the 3.33% level established since January, despite the recent bounce on Friday. While the US10Y 10-year.has been falling since March, this does give a bearish outlook for the USD and a still-bearish bias for the US10Y as well. While the FED does hint at one more hike before considering pausing the tightening cycle, the markets are pricing in rate cuts in mid-2023, which can be negative for the US
With the current situation in the US economy and the interest rate outlook, a further break to the downside of the 3.33% level seems more likely than for rates to soar. Such a scenario, therefore, could lead to a further downfall for the USD.
VIX
The VIX is currently trading below the 20 level, indicating a greater willingness to take risks.A further move down on the VIX would then lead to more risk appetite in the market, which can be positive for risk assets and also risk currencies such as the euro, pound sterling, and the aussie.
INTEREST RATE
Looking at market expectations on the FED interest rate and the recent numbers for the jobs market, the market is pricing in a one-time rate hike on the next FED meeting, followed by a pause, and then rate cuts in July. However, we still have the US inflation numbers and the FOMCS minutes this week, which can change the outlook on the FED interest rate, but a further easing on inflation could reaffirm the idea of a dovish FED that can be negative for the USD.
source: cmegroup
ECONOMIC CALENDAR
Looking at the economic calendar, all eyes will be on the US inflation numbers and the FOMC minutes to get an idea of what the FED views on the economy. Other economic data will be consumer confidence in Japan, Australia, and New Zealand; the BoC monetary report; and the US PPI,GDP, and retail sales. Therefore, expect high volatility around those economic data releases.
source: tradingeconomics
CONCLUSION
To conclude, the market is showing risk-on sentiment caused by the cooling job markets in the US, followed by what seems to be the end of the FED tightening cycle and falling VIX numbers. With the negative outlook for the USD seen from the US 10-year and paired with a risk-on market, do present a possible trading opportunity in the major forex pairs.