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Daily market analysis

Dow dips amid rate worries, dollar wavers as markets eye Fed’s next move

April 4, 2024

On Wednesday, the Dow Jones experienced a slight decline, continuing its downward trend for the third consecutive day, while the S&P 500 and Nasdaq saw modest gains. Market fluctuations were influenced by individual stock performances, such as Intel’s significant drop, and broader economic indicators pointing towards a resilient economy, which in turn affected investor sentiments regarding the Federal Reserve’s interest rate policies. In currency markets, the US dollar faced pressure, with notable movements against the Euro, British pound, and Australian dollar amidst geopolitical tensions and commodity price rallies. Investors remain cautiously optimistic, balancing between the best first quarter since 2019 and the potential for a volatile period ahead as markets adjust to recent gains and anticipate the Federal Reserve’s next moves.

Stock market update

The Dow Jones Industrial Average experienced a slight decline on Wednesday, continuing its struggle to break free from the slump that has characterized the second quarter. The Dow fell by 43.10 points, a 0.11% drop, closing at 39,127.14, marking its third consecutive day of losses. In contrast, the S&P 500 managed a slight increase of 0.11%, closing at 5,211.49, its first gain of the week, while the Nasdaq Composite saw a 0.23% rise, ending the day at 16,277.46. The downturn for the Dow was primarily due to a significant over 8% drop in Intel shares following the announcement of operating losses in its semiconductor manufacturing sector. Despite a positive trend for most of the day, artificial intelligence leader Nvidia ended in the red, hampering the overall market gains. However, substantial increases in major technology stocks like Netflix, up by 2.6%, and Meta Platforms, with a 1.9% gain, provided some support to the market.

Interest rates have continued to place pressure on the stock market. The release of ADP data on Wednesday indicated a higher-than-expected increase in private payrolls for March, signaling a resilient economy but also heightening investor anxiety over the Federal Reserve’s interest rate policies. Comments from Federal Reserve officials dampened hopes for early rate cuts, with Atlanta Fed President Raphael Bostic suggesting a potential rate decrease not occurring until the fourth quarter. Fed Chair Jerome Powell emphasized the need for more evidence of inflation easing before any reduction in borrowing costs. Market predictions now lean heavily towards unchanged rates at the Fed’s May policy meeting, with a diminishing likelihood of a cut by June, as reflected in the shifting odds according to the CME FedWatch Tool and Fed funds futures data.

Despite the challenging start to the quarter, some market analysts remain optimistic, viewing the recent downturn as a period of consolidation after a strong first quarter, the best since 2019 for the S&P 500.

Currency market update

The US dollar experienced additional downward pressure, challenging the 104.00 level as measured by the USD Index (DXY). Upcoming economic data includes February’s Balance of Trade results and weekly Initial Jobless Claims on April 4, alongside speeches from Fed members Barkin, Goolsbee, and Mester. The Euro gained momentum against the dollar, pushing towards the significant 200-day SMA at the 1.0830 region, with market participants looking forward to the final HCOB Services PMIs from Germany and the euro area, as well as the release of the ECB Accounts on the same day. Meanwhile, the British pound surged to new multi-day highs beyond the 1.2600 mark, aligning with the 100-day SMA, ahead of the final S&P Global Services PMI announcement for the UK.

The Japanese yen maintained a steady position against the dollar, staying below the 152.00 mark, with investors eyeing the upcoming release of weekly Foreign Bond Investment figures in Japan. The Australian dollar saw increased buying interest, surpassing the crucial 200-day SMA around 0.6545, with the final Judo Bank Services PMI report due on April 4. In the commodities market, ongoing geopolitical tensions drove West Texas Intermediate (WTI) oil prices to new 2024 highs, exceeding the $86.00 per barrel mark. Safe-haven demand, coupled with anticipations of Federal Reserve rate cuts in June, propelled gold prices to a record peak near the $2,300 per troy ounce, while silver prices continued their rally, reaching new highs just above the $27.00 level per ounce for the first time since June 2021.

Picks of the Day Analysis
EUR/USD (4 Hours)

EUR/USD surges amid diverging central bank policies and mixed economic signals

The EUR/USD pair experienced a significant upswing, breaking past the 1.0800 mark and nearing the 200-day SMA, driven by a noticeable decline in the US Dollar amidst contrasting movements in US and German bond yields. Despite the Federal Reserve and the European Central Bank both indicating the onset of easing cycles potentially beginning in June, divergences in their approach could lead to varied strategies. This period saw mixed messages from Fed officials on interest rate adjustments, amidst indicators suggesting a softer economic landscape in the eurozone but expectations of a resilient US economy. These dynamics, coupled with inflation data below expectations in the euro area, hint at a complex interplay of economic factors influencing the EUR/USD trajectory, with a potential shift towards a stronger Dollar in the medium term as both central banks embark on easing measures, potentially driving the pair to revisit its recent lows.

Chart EUR/USD by TradingView

On Wednesday, the EUR/USD moved higher, able to reach the upper band of the Bollinger Bands. Currently, the price is moving slightly below widen the upper band, suggesting a potential another upward movement to reach the resistance level. Notably, the Relative Strength Index (RSI) maintains its position at 67, signaling a bullish outlook for this currency pair.

Resistance: 1.0858, 1.0911

Support: 1.0785, 1.0723

Economic Data
CurrencyDataTime (GMT + 8)Forecast
CADGDP m/m20:300.4%
USDFinal GDP q/q20:303.2%

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