The US stocks rebounded on Monday. Banking stocks rallied as JP Morgan’s CEO Jamie Dimon said that the ‘storm clouds’ may dissipate. JP Morgan shares jumped more than 6%.
Also, Joe Biden said that the US could ditch the tariffs imposed on Chinese imports to help easing the pressure on consumer prices. The S&P500 gained 1.86% and Nasdaq recover 1.59%.
Yet, Monday gains will likely remain short-lived, as the Snap shares plunged 30% in the afterhours trading after the company warned that it will miss revenue and earnings, and will slow hiring. And the bad news from Snap pulled Meta 7% lower in the after-hours.
As a result, the US futures point at a negative start. It’s like we are coming back to reality after a sunny day in the markets.
ECB finally gets there
At a blog post, European Central Bank (ECB) President Christine Lagarde revealed that she ‘expects net purchases under the APP program to end very early in the third quarter’, which would allow the ECB to raise rates at the July meeting, and exit negative rates by the end of third quarter.
That was something that many euro traders were expecting patiently since months! For now, the ECB policy tightening will likely remain gradual. The latest news suggest that the ECB would raise rates by 25bp in July and September meetings.
It’s a breath of fresh air for the euro bulls. The EURUSD flirted with the 1.07 level yesterday. The combination of a broadly softer US dollar, and the hawkish ECB comments gave a material boost to the single currency
But more importantly, yesterday could be the pivot point for the ECB, and hence the euro, as the ECB finally throws in the towel faced with such a rise in inflation, and that is fundamentally supportive of an extension of gains toward the 1.10 mark against the greenback.
And of course, the fact that we could soon call the end of the dollar rally is also a supportive factor for the EURUSD outlook, which now turns neutral from negative.
And speaking of the dollar
The US dollar index has been toppish since last week. The next technical targets stand at 101 level, the minor 23.6% Fibonacci retracement on last year’s rally, and 99, the major 38.2% Fibonacci retracement which should distinguish between the actual rally, and a bearish medium-term reversal. I don’t expect the dollar to flip to a negative trend so soon, as the Fed will certainly remain more hawkish than the other major central banks. It’s just that the others will also stop turning a blind eye on the inflation problem. And that should slow the dollar appreciation. That’s it.
The softer dollar and the cool down in the US yields help gold consolidate gains. The yellow metal advanced to $1865 per ounce yesterday, and sees support near the $1850 level for a further advance toward the $1875/1880 range.
Crude oil is softer this morning, but we will certainly see dipbuyers within the $105/110 range, and Bitcoin is below the $30K. The selloff certainly has to do more with the overall risk-off mood this morning, rather than Christine Lagarde’s view that ‘the cryptocurrencies are worth nothing’. But the fact that she wants them regulated may have had a certain impact on the mood, still.