USD Strength and Weakness in Stocks Expected to Continue

USD Strength and Weakness in Stocks Expected to Continue
Monday's Asian session brought further US dollar strength as the bull market in the USD remains intact.
The EURUSD pair dropped toward 1.05; Cable fell to 1.2550, and USDJPY rose 50 pips to 130.50.

Later today, confidence indices for April are due from the eurozone, including industrial confidence, consumer confidence, services sentiment, business climate, and the economic sentiment indicator. Investors expect a further decline in the mood across the board, likely providing additional sell pressure on the EURUSD pair. 

The US ISM manufacturing for April will be released during the US session, seen improving marginally from 57.1 to 58.0. However, the employment and prices-paid (aka inflation) subindices are expected to decline. 

Hawkish Fed this week

In recent weeks, the central theme in the markets has been the soaring inflation, pushing yields sharply higher as investors have been adjusting their rate expectations to more and more hawkish.

Fed funds futures indicated traders were factoring in a more than 99% chance that the Fed will raise rates by 50 basis points at its meeting this week, bringing the federal funds rate range to 0.75% to 1.00%.

“We really are committed to using our tools to get 2% inflation back," Jerome Powell said earlier in April." So it is appropriate, in my view, to be moving a little more quickly. And I also think there is something in the idea of front-end loading that points to the direction of 50 basis points being on the table.”

Commodities and stocks retreating

Traders have also scaled down their long positions in commodities, mainly in the precious metals sector. Silver is down nearly 15% from 26 USD to 22.50 USD, while gold settled below 1,900 USD. Copper declined and fell below its 200-day moving average, likely ending the recent bull market. 

In terms of US stocks, equity indices fell sharply in April as quarterly earnings reports from several prominent tech corporations prompted fears about the economy's recovery. As a result, both the SP500 and the Nasdaq ended the month at their lowest levels this year. 

With a 13% drop, the Nasdaq had its worst month since the Great Recession of 2008. The Dow fell about 5% in April, while the SP500 fell more than 8%. Volatility is expected to be elevated this week as well, mainly due to the FOMC decision on Wednesday and US labor market data on Friday. 
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