The long-awaited inflation data for May has broken the suspense across financial markets. Ahead of the crucial data, all three benchmark US stock indices declined moderately. US stocks are trading in a narrow range just below the highs of the year.
The worst prediction has come true. Consumer inflation surged 5% in May in annual terms, much stronger than expected. The soaring inflation will certainly throw a punch on the US dollar. When it comes to the US stock market, the prospects of new one-year highs are delayed indefinitely. Moreover, US stocks could not be able to reach fresh record highs.
Yesterday, all three stock indices closed with minor losses in the quiet market. The Dow Jones declined 0.4%. The Nasdaq edged down 0.1%. In anticipation of inflation data, prices of US bonds were rising while Treasury yields were going down. This is happening for obvious reasons. Investors are hedging risks from a possible market downturn. Meanwhile, yields of 10-year Treasuries fell below 1.5%.
Today the S&P500 is trading at near 4,220. It is expected to hold in the corridor of 4,180 to 4,260 in the near time. However, the index could sink below 4,180.
It goes without saying that a further trajectory of the US dollar will depend on the inflation data. Yesterday, the US dollar index climbed to 90.20. It is likely to trade in the corridor of 89.50 to 90.30 in light of the CPI report. Another bearish factor for the weak greenback is a policy update of the ECB. As expected, the central bank has left interest rates unchanged. It intends to continue injecting liquidity in the EU economy through the bond-buying program.
The US dollar asserted strength against its Canadian rival. So, the currency pair has grown to the upper border formed in recent weeks. The USD/CAD pair is trading at about 1.2115. Its range is set from 1.2050 to 1.2200. The loonie is now losing support from oil prices which are retreating from highs. Currently, the US is pumping up oil output amid the bullish trend in the oil market. This can subdue a further growth of oil prices.
In the meantime, the crypto market has been trading sideways. Bitcoin is trading at around 37,800 dollars per token. What to expect in the short term? Analysts do not foresee a sharp seesaw of digital tokens. In case Bitcoin pulls back to the level below 33,400 dollars, the price could plunge as low as 30,000 dollars and even deeper to 24,000 dollars. Alternatively, if the price is able to fix above 42,000 dollars, it could climb to 47,000 dollars. That’s what we have already talked about earlier. The outlook is rather positive. The Iranian President advocates for the legislation to regulate cryptocurrencies in the country. Congress in El Salvador approved the bill that would regulate the Bitcoin use as legal tender.
The events that have happened today are of crucial importance to the market. How will investors respond to fresh evidence of soaring inflation in the US? Are they ready to push US stocks to new historic highs? We will find the answers to these questions tomorrow. One thing is certain that the market has not got into a panic. Besides, some indices are even extending growth.