Equities Trying to Stage Comeback; Dollar Drops Further
26 May 2022
Sentiment in the market remained fragile on Thursday. However, investors were trying to bid on US equity indices as they are heavily oversold and close to their cycle lows.
It looks like the bottom might be in for the major US benchmarks as we have seen some consolidation for the past days, likely implying the selling is over.
Wednesday brought the FOMC minutes from the latest Fed meeting, which read that all members supported efforts to lower the balance sheet. Some suggested that when the runoff was well started, it might be prudent to pursue selling mortgage-backed assets.
Elsewhere, tensions between the United States and China are rising after US President Joe Biden stated that his nation would protect Taiwan militarily in case of a Chinese invasion.
President Christine Lagarde of the European Central Bank stated this week that the ECB's negative deposit rate should begin to rise in July and might be at zero or "slightly above" by the end of September before climbing "towards the neutral rate."
Dollar loses steam
The EURUSD pair rose above 1.07 following the comments, jumping to the highest level since late April. The USD weakness has been observed lately, pushing the GBPUSD pair to the key resistance at 1.26. Should the GBP jump above it, a further rise toward 1.30 seems likely.
Additionally, USDJPY posted a massive head and shoulders pattern, with the pair now falling below the formation's neckline at 127, implying a 400 pips decline over the following weeks.
Weakness in the greenback has benefitted precious metals, with silver rising to 22 USD and gold jumping above its 200-day moving average again.
Later today, the usual Thursday claims are due, along with the GDP revision for the first quarter. Moreover, PCE indices will be released as well as pending home sales. Last but not least, Canadian retail sales are on the agenda, likely moving the USDCAD pair.