Hello traders, Coming into the end of the month, like usual, I will be covering the sentiment of the current market and some personal opinion of the market. So i hope you can find it informative.
SPX
Starting with the SPX, which gauges the risk appetite in the market, Previously, in early February, price broke down after topping at 4195 with the triple top formation, and since then the market has just dropped as inflation proved to be “sticky” and rulled out the slightest idea of a rate cut in 2023, while also reinforcing the FED’s decision to maintain a hawkish stance until there was evidence of downtrending inflation.
Last week, the core PCE index (MoM), which is the FED’s preferred inflation metric, rose to 0.6% from 0.4%, beating the forecast of 0.4%. So, fundamentally, we can see a bearish bias for investment risk, which is reflected on the technical side, where the SPX has been trading below the 20-day moving average since mid-February, breaking previous support structure.
The SPX recently tested the 4025 new resistance level and held to maintain its bearish bias. However, the bears may face some significant obstacles in the coming trading sessions, as the 200-day moving average at 3940 and a previous support level at 3900 come into play. Looking at the stochastic also shows price to be relatively oversold, and a bounce of the 200-day MA is possible, which could lead to a retracement to either 4025 or 4050 for the new lower high.
source: cmegroup
BONDS
Looking at US 10-year yields, we can see how the US 10-year previously managed to breach the December 2022 high on fears of upcoming FED rate hikes and to remain above the resistance level until the time of writing this forum. Also, the US10Y has been on the rise ever since early February and has been trading above the 20-day moving average with minor pullbacks in between, which can create this bullish bias for the USD. The stochastics show that momentum is overstretched, implying strong bullish pressure on bond yields.
After consolidating since November 2022, US-02 year yields are also making a strong bull breakout. That also supports the idea of a bullish bias for the USD. Also, the stochastic is indicating that the price is relatively overstretched, while also implying that the 2 year bond yields are under strong bullish pressure as well.
VIX
looking at the VIX, which gauges the level of fear in the market. In February, the VIX has been on the rise as it starts to form higher highs and higher lows and to be above the 20 level, which can indicate the market is slowly shifting to more of a “risk off” environment and an increasing level of fear and uncertainty in the market.
DATA RELEASE
For the upcoming economic data release, we do have several high-impact news items, but traders can be watching the US ISM manufacturing and non-manufacturing PMI as it has the potential to disrupt or even reinforce the bull trend in the USD. Also, traders can keep an eye on the inflation and unemployment rates for EUR crosses, like EUR/GBP.
source: tradingeconomics
Conclusion
The sentiment of the current market seems to be shifting to more of a “risk-off” environment as the SPX is experiencing a strong decline and we have rising bond yields and a rising level of fear and uncertainty reading from the VIX. Bond yields also indicate a bullish bias for the USD as the FED maintains its hawkish stance and upcoming rate hikes.