The 2-day rally in the US stock market caused by corporate earnings reports stumbled over Tesla's mixed results. The quarterly earnings of the company came in less than expected which is why other major currencies eased against the US dollar.
This came fully in line with our forecasts. As the Fed keeps bombarding the market with statements about the need to continue its aggressive monetary tightening, stock markets are unlikely to develop a sustainable rally. Meanwhile, rising Treasury yields will continue to support the US currency. Charles Evans and James Bullard echoed the previous statements made by their colleagues which confirms a strong consensus between the presidents of different federal reserve banks regarding the tight monetary policy.
Today, the US benchmark 10-year bond yield is holding firmly above 4%. At the time of writing, it added 0.27% to reach 4.140%, the level last seen in January 2008.
What to expect in the market today:
The European stock market may open in negative territory and may start to decline at the opening of the session. Likewise, the US stock market may trade in the red judging by the stock futures dynamic. Investors are worried about the rise in US Treasuries and the start of a real recession in the US. Meanwhile, the American authorities prefer to ignore this factor.
The foreign exchange market looks sluggish today. Traders are waiting for the initial jobless claims data from the US and the data on existing home sales. The number of claims for unemployment benefits is expected to be at 230,000 compared to 228 000 for the week before that. Existing home sales are likely to drop to 4.7 million from 4.8 million.
Given the overall market situation, the US dollar is expected to stay in the range-bound market against other majors except for the yen which is set to extend its rapid fall against the greenback. This trend is likely to persist until the end of the week.
Daily forecast:
EUR/USD
The pair is trading above the level of 0.9755. A decline and consolidation below this line may send the pair down to 0.9680 amid disappointing inflation data and rising Treasury yields.
USD/JPY
The pair is surging to the upside supported by a wide gap between the interest rate policies of the Fed and the Bank of Japan. A breakout of the 150.00 level may push the price higher to 151.00.
