Global stocks slump after Fed warning and rising volatility
The euro pared back some of the losses made earlier yesterday after better-than-expected sentiment data from the European Union. According to the European Commission, the industrial sentiment increased from -6.8 to -5.9 while the services sentiment declined from -17.1 to -17.8. Similarly, the business and consumer survey fell from 92.4 to 91.5, which was better than the expected 89.5. These numbers came a few days after the ifo Institute and the GsK released weak sentiment data from Germany.
Global stocks declined today as traders reacted to the statement by the Federal Reserve. In its meeting yesterday, the bank left interest rates and its quantitative easing policies unchanged. However, the Fed chair warned about the challenges that lie ahead for the US economy. Also, stocks are falling because of the rising volatility in the stock market. In the past few days, some of the highly shorted companies like AMC and GameStop have risen by more than 100%. This performance is being driven by retail traders in social platforms like Reddit and Discord. In Europe, the DAX index, FTSE 100, and CAC 40 dropped by more than 1%. Similarly, in the US, futures tied to the Dow Jones and S&P 500 indices have also fallen.
Commodity prices dropped today after the warning by Jerome Powell about the state of the economy. The price of Brent and West Texas Intermediate (WTI) dropped by more than 0.30%. Similarly, natural gas, gold, copper, and copper fell by more than 0.25%. Most of these commodities like crude oil and copper tend to do well in periods of high economic growth. Notably, oil dropped even after the relatively bullish oil inventory numbers. Yesterday, the Energy Information Administration (EIA) said that inventories fell by more than 9 million barrels.
Meanwhile, the US dollar rose today because of the rising risks in the market. Also, investors were reacting to the mixed economic data from the United States. The data showed that the economy expanded by about 4% in the fourth quarter. This was lower than the previous quarter’s growth of 33%. Meanwhile, more than 847k people filed for unemployment claims last week. This was lower than the previous week’s increase of 900k.
The EUR/USD pair bounced back to an intraday high of 1.2130, which was higher than last week’s low of 1.2060. On the four-hour chart, the 25-day and 15-day moving averages have made a bearish crossover. The price has also moved below the second support of the Andrews Pitchfork tool and the Ichimoku cloud. Therefore, there is a likelihood that the price will continue falling in the short term.
The USD/CHF pair rose to an intraday high of 0.8900. On the four-hour chart, the price is slightly above the 25-day moving average. Also, the price is slightly below the important resistance level of 0.8970. It is also slightly below the 38.2% Fibonacci retracement level. Therefore, the pair will likely continue rising as bulls target the resistance at 0.8970. Further moves above this level will signal that bulls have prevailed.
The GBP/USD pair rose slightly today, erasing some of the losses made overnight. On the four-hour chart, the pair reached a low of 1.3630, which is at the same level as the lower line of the channel. The price is also along the 25-day moving average. Therefore, at this point, the outlook for the pair is neutral. Any move below the support at 1.3630 will be a sign that bears have prevailed. This will see it continue falling to the support of 1.3518. The alternate scenario is where the price rises to the upper side of the channel at 1.3750.