Hello traders, welcome back to my forum post ! Like always, from this post I’ll be sharing my personal market sentiment analysis to get a better feel of the market.
SPX
Starting with the S&P 500, which is an easy measure to gauge risk appetite in the market, Last week we had a dovish hike from the FED, and with recent turmoil on the bank issue from SVB and Credit Suisse’s takeover, it does create some degree of uncertainty in the market. While the rate hike from the FED takes a toll on the stock market, the dovish view of the FED as they hinted at one final rate hike does spark some hope for risk assets.
From the technical side, this can be seen as the S&P 500 printing an inverse head and shoulders pattern, which signals a potential bullish move in the upcoming trading sessions. Price is currently near the shoulder of the price pattern at 3925 and the descending neckline, or a bearish trendline, at near 3990. A technical break of the neckline would confirm the risk-on bias. Also, the S&P 500 is trading inside the 50-day moving average (4014) and the 200-day moving average (3932). The stochastic is currently above the 50 level but still in the neutral zone.
BONDS & YIELDS
Looking at bond yields, the US 10-year yields are still facing a massive downfall ever since the SVB and Credit Suisse turmoil, which led yields to hover at 3.38%, which is the lowest since early March and near January’s low. If yield were to fall even further, it would then lead to more of a risk-off appetite and could mitigate the bullish bias that is shown in the S&P 500.
The falling yields also correlate with rising bond prices as investors seek safe assets until risk-on sentiment arises. The US 10-year bond prices are currently hovering near the 101 level and making a nice bearish break and retest pattern at the 101 resistance, which signals a potential bearish continuation for bonds and hence a risk-on bias in the upcoming trading session.
VIX
If we look at the VIX index, the stress level in the market has dropped quite significantly while still hovering above the 20 level. The VIX then shows how market risk appetite has been improving and investors are more likely to take risks, which is good for risky assets. A further fall of the VIX would even benefit risk assets, support the risk-on sentiment from the S&P 500, and align with the risk-on bias that is shown from bonds and yields.
INTEREST RATE
Since the last rate hike from the FED, the FED has hinted at a possible final rate hike. The market perceives this as the end of the FED’s tightening policy, and markets are starting to price in interest rate cuts, which is another way of saying a “dovish hike”. Looking at market expectations, beside the FED’s comment on one last rate hike, markets are pricing the interest rate to remain unchanged and expect the FED to cut rates as early as July 2023. While economic data releases can change market expectations on the interest rate, at the moment the rate cuts and the end of FED tightening policy can spark a risk-on bias.
Source: CMEGROUP
ECONOMIC DATA RELEASE
This week’s economic data release will be very busy at the end of the week on Friday as we have inflation numbers from the Euro Area and the US core PCE price index. Other data releases include Germany’s inflation numbers and US personal income and spending, which can show the condition of the economy.
Source: Tradingeconomics
Conclusion
Markets are showing signs of a risk-on bias as the banking issues start to ease, followed by the dovish hike from the FED. Markets are also pricing in interest rate cuts in July, which can be bad for the US dollar. For forex traders, the risk-on bias could lead to potential trading opportunities in risk-on currencies such as the EUR,GBP, and AUD.