Market turbulence amid Fed concerns and oil price spike

April 5, 2024

Stocks plummeted amid rising oil prices and concerns over the Federal Reserve’s interest rate policies, with major indices like the Dow Jones, S&P 500, and Nasdaq experiencing significant drops. The spike in oil prices to over $86 a barrel fueled inflation fears, while remarks from Fed officials suggested a cautious approach to rate cuts, contributing to market volatility. Meanwhile, in currency markets, the USD Index fell, the euro and pound gained, and gold prices briefly touched all-time highs, reflecting a complex interplay of economic indicators and central bank signals affecting investor sentiment.

Stock market updates

Stock markets experienced a significant downturn on Thursday, fueled by a combination of rising oil prices, mounting fears that the Federal Reserve may delay interest rate cuts, and apprehension about the upcoming March jobs report. This cocktail of concerns led to a sharp sell-off, marking the Dow Jones Industrial Average’s worst performance since March 2023, as it plunged by 530.16 points or 1.35%, settling at 38,596.98. The S&P 500 and Nasdaq Composite weren’t spared either, recording declines of 1.23% and 1.40% to close at 5,147.21 and 16,049.08, respectively, highlighting a broader market apprehension.

Amidst the trading day, a sudden spike in crude oil prices exacerbated the market’s woes, with West Texas Intermediate (WTI) crude breaching the $86 per barrel mark, a peak not seen since October. This surge sparked additional inflationary fears among investors, contributing to the market’s downturn. Complicating matters, Minneapolis Fed President Neel Kashkari’s comments added to the uncertainty, hinting at a potential reconsideration of rate cuts if inflation persists. These factors, combined with a rise in the 10-year Treasury yield to 4.305%, underscored the growing caution among investors, reflected in the day’s volatile trading patterns.

Analysts and investors alike are adopting a cautious stance, closely monitoring the 10-year Treasury yield as a key indicator of future Federal Reserve actions. The overarching sentiment is one of caution, with a focus on how the Fed’s interest rate policies and inflationary pressures will shape market dynamics moving forward.

Currency market updates

The currency markets saw varied movements as the USD Index (DXY) experienced a further decline, dipping into the sub-104.00 region. Anticipation is building for April 5, with market participants keenly awaiting the Non-farm Payrolls, Unemployment Rate, and speeches from several FOMC members. The euro maintained a positive trajectory, reaching new multi-day highs near 1.0880, while the British pound edged close to the significant 1.2700 mark, marking its third consecutive session of gains. Meanwhile, the USD/JPY pair fluctuated within a narrow range, signaling a period of consolidation.

In the commodity currency space, the Australian dollar showcased notable strength, surpassing the 0.6600 threshold, amid expectations for the upcoming Balance of Trade results. This movement reflects broader currency market dynamics, where specific data releases and economic indicators are keenly anticipated for their potential impact on currency valuations. Additionally, the trading session for WTI crude remained relatively flat, yet close to its yearly highs, indicating a sustained interest in energy markets.

Precious metals witnessed a mixed session; gold prices paused after reaching an all-time high above $2,300 per troy ounce, while silver prices ended the session with minimal changes, despite hitting new highs earlier. These movements underscore the volatility and diverse influences at play within the currency and commodity markets, as investors navigate through economic data releases, central bank communications, and broader geopolitical factors impacting market sentiment and currency valuations.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD rises amid divergent central bank policies and economic outlooks

Despite a significant drop in the US Dollar, leading to a robust increase in EUR/USD to the 1.0870-1.0880 range, the currency pair’s movement reflects broader economic trends, including fluctuating US yields and a steady rise in German bund yields. Central bank policies are in the spotlight, with both the Fed and ECB expected to begin easing cycles possibly by June, although their approaches may diverge. The Fed faces challenges in curbing housing sector inflation, while the ECB grows confident about reaching its inflation target, hinting at upcoming rate cuts. However, the long-term outlook suggests a potential strengthening of the Dollar against the Euro, especially if the ECB and Fed initiate simultaneous easing, potentially driving EUR/USD down to new lows.

Chart EUR/USD by TradingView

On Thursday, the EUR/USD moved lower after reaching the upper band of the Bollinger Bands. Currently, the price is moving in the middle between the middle and upper band, suggesting a potential slight downward movement to reach the lower band before going back higher. Notably, the Relative Strength Index (RSI) maintains its position at 59, signaling a neutral but bullish outlook for this currency pair.

Resistance: 1.0858, 1.0911

Support: 1.0785, 1.0723

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