Last week, the main US stock indexes completed in positive territory. The main increase of the indices in the previous week was due to strong growth on Friday. While indices are growing, investors are still in a state of confusion after the recent stock market crash observed earlier this month. Market participants are trying to understand - what is happening in the market: the markets resumed growth to new record highs or it is a temporary rebound before a new jerk down.
The recent collapse in the stock markets was triggered, mainly, by increased inflation in the US, which could lead to more active actions of the Fed in the matter of tightening monetary policy. Against the backdrop of stable economic growth in the US and because of increased inflation, the Fed will be forced to raise rates at a faster pace in order to avoid overheating of the economy.
And this is a strong negative factor for the stock markets, which usually grow against the backdrop of soft monetary policy and fall, if the rates have started to rise. Much also depends on the speed and scale of tightening monetary policy.
In this regard, it is worth recalling the words of the former head of the Fed, Janet Yellen, that only raising rates is not enough to break the bullish trend of the US stock market, and a gradual increase in the rate indicates the strength of the American economy.
Now market participants will wait for the first speech of the new head of the Fed, Jerome Powell, before the congress, which will be held on Tuesday (13:30 GMT). Investors want to hear from Powell, what is the probability that this year rates will be raised more than 3 times.
At the same time, many investors believe that during his first speech with a report on the results of the first half of the year, the new head of the Federal Reserve, Jerome Powell, will point to a good form of the US economy, however, he will not say anything new about the tightening of the monetary policy of the Fed. It is likely that Powell will try to emphasize the need for a gradual increase in the rates of the Fed, avoiding any hint of the possibility of a faster rate hike.
If Powell only hints at the possibility of raising rates more than 3 times this year, then the reaction of the markets can follow immediately: the dollar will jump in price, and the stock indexes will again fall down.
Meanwhile, the S&P500 index is trading higher for the third day in a row, adding to the price from the opening of today's trading day.
After the strongest collapse in early February, from February 9 futures on the S&P500 steadily adds to the price, gradually restoring positions, and at the beginning of today's European session S&p500 is trading near the mark of 2760.0. The index finished in positive territory 8 of the last 11 sessions since February 9 began recovery after the fall. Over the past two weeks, the S & P500 has gained about 5.0%, which was the strongest two-week increase since February 2015.
The S & P500 grew almost fourfold from the 2009 low, and the yield of 10-year US government bonds in 2016 dropped to 1.336% from a level above 4% recorded in 2008. Now, another increase in the yield of 10-year US government bonds above 3% may provoke another decline of not only the S & P500 index, but the entire US stock market, followed by other global stock markets.
From the news for today, which can cause the growth of volatility in the financial markets, we are waiting for the speech (at 13:00 GMT) of the member of the FRS Committee on Open Markets, James Bullard and ECB President Mario Draghi (at 14:00 GMT).
*)An advanced fundamental analysis is available on the Tifia Forex Broker website at tifia.com/analytics
Support levels: 2725.0, 2682.0, 2630.0,
Support levels: 2725.0, 2682.0, 2630.0, 2580.0, 2530.0
Resistance levels: 2800.0, 2829.0, 2877.0, 2900.0
Sell Stop 2740.0. Stop-Loss 2688.0. Objectives 2630.0, 2614.0, 2565.0, 2530.0
Buy in the market. Stop-Loss 2740.0. Objectives 2780.0, 2800.0, 2829.0, 2877.0, 2900.0
*) For up-to-date and detailed analytics and news on the forex market visit Tifia Forex Broker website tifia.com