- The USA100 climbs more than 2% as sentiment changes ahead of this week’s US consumer and producer inflation data.
- The US Dollar Index trades sideways as investor sentiment improves but participants are not yet fully disposing of the Dollar.
- Analysts advise the performance of the Dollar will largely depend on Thursday’s inflation data.
- Semiconductor companies such as NVIDIA and AMD outshine the rest of the stock market and particularly support the USA100 and SNP500.
USA100 – Can Stocks Hold onto Gains and Avoid Investor’s “Cashing In” Monday’s Profits?
The USA100 on Monday witnessed its strongest price increase since mid-November 2023 as investors take advantage of the lower entry price to position themselves ahead of US consumer inflation on Thursday. However, the lower price also provides an advantage for buyers to enter prior to the start of the earnings season.
The asset’s volatility will be considerably higher than normal and did not form a retracement for the whole of the US trading session. This clearly shows the session was dominated by buyers and that the market believes inflation will not rise above expectations. The strong bullish momentum is also a result of strong demand for stocks in the “Semiconductor” segment. This is most likely due to their strong earnings and growth over the past five quarterly earnings releases. NVIDIA stocks rose 6.43% and AMD rose 5.45%. Both are influential stocks for the USA100 and USA500.
When looking at the performance of the USA100’s components we can see all the top 20 most influential stocks holding the highest weight rose in value. In addition to this, 93% of the index ended the day higher and only 7% recorded a decline.
Bond yields this morning are higher again adding a further 0.040%, but the US Dollar sees little change. The higher bond yields are negative for the stock market if they remain high. For example, yesterday bond yields started higher but could not hold onto gains allowing stocks to rise. If bond yields and the Dollar both rise, traders may consider the possibility of investors cashing in yesterday’s profits. Though in the medium-term the price will depend on Thursday’s inflation data which will determine how rates may change.
In terms of technical analysis, the asset is witnessing clear buy signals due to the quick and strong upward price movement. However, investors will need to monitor crossovers, breakouts, and indicators throughout the day to determine how the price may develop in the short-term.
USDJPY – Japanese Inflation Data Declines as Expected!
The US Dollar is decreasing in value this morning for a third consecutive day, but not at a momentum to yet spark major sell signals. Investors in the Dollar are treading cautiously until the release of the US inflation data. If US inflation does indeed climb from 3.1% to 3.2%, a rate cut would indeed become unlikely for several months. According to some analysts, if inflation remains sticky for more than 2 months, rate cuts will not be likely until the last few months of the year.
However, if inflation declines and remains at 3.1%, the Dollar potentially can trade weaker. Up to now the strong employment sector and weakening inflation rate over the past 6 months has made a “soft landing” more likely. As a result, investors have been less interested in the Dollar and other safe haven assets such as bonds. However, this will only continue if a soft landing remains the most likely outcome and inflation remains low.
If the price rises above 144.305, buy signals are likely to materialize as bullish crossovers form and the price breaks the bearish wave pattern. However, if the price breaks below 143.65, the short-term crossover will point downwards.
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Michalis Efthymiou
Market Analyst
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