On Thursday, the stock market witnessed significant gains, with the S&P 500 and Nasdaq Composite reaching new record highs, driven by investor optimism over easing inflation and robust gains in the technology sector. The S&P 500 increased by 1.03% to 5,157.36, while the Nasdaq Composite climbed 1.51% to 16,273.38, marking a notable recovery for Wall Street midweek. This positive momentum was fueled by optimistic global inflation trends signaled by the European Central Bank’s updated forecasts and Federal Reserve Chair Jerome Powell’s hints at potential interest rate cuts within the year. Additionally, the upcoming U.S. jobs report is eagerly awaited for further insights into the labor market’s resilience. The day’s market performance was also influenced by significant movements in the currency market, following dovish indications from the Federal Reserve, impacting major currency pairs and contributing to a cautiously optimistic market sentiment.
Stocks experienced a notable rise on Thursday, propelling the S&P 500 and Nasdaq Composite to new record highs, fueled by optimism regarding easing inflation and a surge in technology sector gains, contributing to Wall Street’s recovery midweek. The S&P 500 ascended by 1.03% to reach 5,157.36, and the Nasdaq Composite saw a 1.51% increase to 16,273.38, both marking record highs during the trading session, with the S&P 500 also achieving a record close. The Dow Jones Industrial Average experienced a more modest rise, gaining 130.30 points, or 0.34%, to conclude at 38,791.35. Leading the charge in the S&P 500, information technology, and communication services stocks, particularly Intel, stood out with a gain of over 3%, highlighting the sector’s significant contribution to the day’s positive market performance.
Fueling investor optimism, the European Central Bank (ECB) revised its forecasts to show lower expected annual inflation and growth rates, yet maintained steady key interest rates, a move interpreted as a positive indicator concerning global inflation trends. This development followed Federal Reserve Chair Jerome Powell’s address to Congress, where he anticipated a reduction in interest rates within the year, despite not being immediately prepared to initiate cuts. He expressed to the Senate Banking Committee that the Federal Reserve was nearing the confidence needed concerning inflation to commence rate reductions. Meanwhile, the market’s attention is drawn towards the upcoming U.S. jobs report, seeking insights into the labor market’s condition amidst ongoing resilience against the backdrop of higher interest rates. Notably, while the S&P 500 and Nasdaq displayed weekly gains, the Dow still faced a slight decline, underscoring the mixed yet cautiously optimistic sentiment prevailing in the market.
The currency market saw significant movements following dovish signals from the Federal Reserve, as outlined by Fed Chair Jerome Powell during his congressional testimony. Powell’s indication of a potential rate cut in 2024, bolstered by his confidence in nearing the Fed’s 2% inflation target, led to a downward adjustment in the USD index, which fell by 0.38%. This dovish stance was further echoed in the adjustments of short-term interest rate futures, with expectations now set for 92 basis points of cuts by the December 18 FOMC meeting. This shift in sentiment has reversed some of the dollar’s gains from February, influencing major currency pairs, notably with the EUR/USD rallying by 0.34% to 1.0934, despite the European Central Bank’s (ECB) decision to hold rates steady and a somewhat less dovish commentary from ECB President Christine Lagarde.
In the Asian currency markets, the USD/JPY pair witnessed a notable decline, dropping by 0.87% to 148.09, influenced by the dovish Fed outlook and speculative adjustments ahead of the Bank of Japan’s (BoJ) meeting. Market participants are closely watching for any signs of a policy shift by the BoJ, which could predate the Fed’s anticipated rate cuts. Meanwhile, the GBP/USD pair reached a new high for 2024 at 1.2798, buoyed by the relative firmness of the pound against a backdrop of dovish stances from both the ECB and the Fed, and sustained by higher UK inflation expectations relative to the U.S. and the Eurozone. Additionally, broader market movements were seen in the rise of Bitcoin and gold prices, both benefiting from the lower rate environment suggested by the Fed’s dovish outlook, highlighting the interconnectedness of global financial markets and the significant impact of central bank policies on currency valuations.
EUR/USD breaks past 1.0900 amidst dovish central bank outlooks and weak US dollar
EUR/USD has successfully breached the significant 1.0900 level, reaching multi-week highs as the US dollar faces heightened selling pressure following Chair Jerome Powell’s testimony and disappointing US labor market data. The US dollar index (DXY) continued its decline for the fifth session, hitting five-week lows, amidst ongoing speculation of a Fed rate cut in June. Concurrently, German 10-year bund yields hit multi-week lows after the ECB maintained interest rates, reflecting a cautious market sentiment.
Fed Chair Powell’s comments hinted at potential interest rate cuts within the year, contingent on a confident trajectory towards the 2% inflation target, with market expectations of a June rate cut rising to 60%. Meanwhile, the ECB’s steady outlook forecasts moderate economic growth and a gradual reduction in inflation, despite acknowledging challenges such as labor demand slowdown and domestic price pressures.
Despite the ECB’s and the Fed’s dovish stances potentially indicating the start of easing cycles, the stagnant euro area fundamentals against the backdrop of the resilient US economy suggest a stronger dollar in the medium term. This dynamic sets the stage for a possible deeper correction in EUR/USD, targeting its year-to-date low around 1.0700 and potentially extending towards late 2023 lows in the 1.0500 area, reflecting the nuanced interplay of monetary policies and economic indicators in currency market movements.
On Thursday, the EUR/USD moved higher and was able to reach the upper band of the Bollinger Bands. Currently, the price is moving just below the upper band, suggesting a potential upward movement to reach above the next resistance level. Notably, the Relative Strength Index (RSI) maintains its position at 71, signaling a bullish outlook for this currency pair.
Resistance: 1.0984, 1.1079
Support: 1.0907, 1.0812
| Currency | Data | Time (GMT + 8) | Forecast |
|---|---|---|---|
| CAD | Employment Change | 21:30 | 21.1K |
| CAD | Unemployment Rate | 21:30 | 5.8% |
| USD | Average Hourly Earnings m/m | 21:30 | 0.2% |
| USD | Non-Farm Employment Change | 21:30 | 198K |
| USD | Unemployment Rate | 21:30 | 3.7% |
