20.07.2021: US stock market sinks sharply. (S&P500, DXY, USD/CAD, BTC/USD)
The global oil market and the US stock market have been hit by the first large correction wave this year. On Monday, all three key stock indices took a nosedive, even though there was no any market catalyst which triggered such a response from investors. Apparently, market participants decided to lock in profits at the peak of the strong rally which had been going on since the beginning of the year. Besides, investors are sitting on the sidelines of the Fed’s policy meeting that will take place next week.
Today market participants found out that economic prospects in the US are overshadowed by uncertainty. Indeed, building permits, which are an indicator of future housing demand, tumbled in June, having undershot expectations. Does it mean that the US stock market has exhausted its bullish momentum? Let’s try to figure out!
The US stock market plummeted since the opening of the North American session on Monday. Later, the market found modest support that as expected. A few days before a slump, the S&P 500 shed 130 pips. The index is now trading lower at near 4,260.
The expected corridor for the index is seen between 4,220 and 4,300. The market is likely to make efforts to regain some footing at the current levels. In other words, investors could enter the market with long positions at lower market quotes. At the same time, analysts do not rule out a new wave of a downward correction.
Amid this background, the US dollar index, which measures strength of the US currency against its six major rivals, has been gyrating in parallel with the US equity market. The reason behind the choppy market is falling yields of US Treasuries. Investors are moving their funds from declining stocks to safe haven Treasuries. This is the way how investors saved their returns amassed on the back of the dazzling rally of US stocks since the beginning of the year. As a result, the US dollar index closed at about 93.00 points yesterday, the highest mark since early April. So, the index is now not far away from 93.50, the strongest level of the year.
The US currency gains support from rampant inflation in the US and the growing likelihood that the Federal Reserve will have to tighten monetary policy earlier than originally expected. Experts are bullish about the US dollar. Its index is likely to surpass the level of 93 in the near future.
Yesterday, we pointed out in our forecast that the USD/CAD pair would reach the level of 1.2800 in the long term. In fact, the prediction came true a few hours later. Interestingly, the forecast was made for the term of several weeks but not hours. However, once the price climbed above long-term highs, stop orders were inevitably triggered. Now the USD/CAD pair is at a crossroads. Analysts foresee equally possible scenarios of a further growth towards 1.3000 as well as a deep retracement. Meanwhile, the currency pair is expected to trade in the channel between 1.2700 and 1.2860.
What is going on in the crypto market? Bitcoin is extending its slump, having fallen below the level of 30,000 dollars. Earlier, we pointed out that it is a psychologically important level for the flagship cryptocurrency. If Bitcoin gets stuck below the landmark level until tomorrow, it is expected to plunge as low as 28,000.
To sum up, experts believe that the markets are set for the consolidation stage that is going to last for two-three days. Once it is over, there is a fifty-fifty chance that the US stock market will resume its climb to new highs or develop the second downward correction. The second scenario is more probable especially if the Federal Reserve comes up with a hawkish policy update. The policy meeting is scheduled for July 27-28. The regulator is due to unveil its policy decisions on July 28. Meanwhile, Wall Street investors are pondering over further market trends.
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