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FX.co ★ 25.01.2022: US stock market rebounds ahead of Fed policy update (S&P500, DXY, USD/CAD, BTC/USD)

25.01.2022: US stock market rebounds ahead of Fed policy update (S&P500, DXY, USD/CAD, BTC/USD)

Hi, dear friends! The US stock market went through massive sell-offs that are nothing but the ongoing downward correction. The reasoning behind this viewpoint is the healthy economic conditions in the US. Experts predict that the US GDP will expand by more than 5% annually. Besides, robust employment and high consumer activity support the optimistic outlook for the top global economy. In other words, there is no cause for alarm. Let’s discuss the latest market developments right now!

The US equity market was trading on a roller coaster yesterday. First, all stock indices plummeted, later on reversed upwards, and even managed to close with gains. The Nasdaq proved itself a leader with the strongest intraday growth of 0.6%. The Dow Jones closed 0.3% up. The S&P 500 also closed with a 0.3% intraday rise, making up for the loss of 4% in the early session. The situation means that the market has exhausted its bearish momentum. So, we could see the bottom at yesterday’s lows and efforts to reverse upwards. Today futures on the S&P 500 are trading at about 4,410 inside the corridor of 4,370 to 4,450.

The culprit for the fall in the US stock market is the hawkish Federal Reserve. Market participants will find out the Fed’s policy update tomorrow. However, there are other long-term reasons why investors are fretted and poised to leave risky assets. The major reason is the bubble of excessive long positions. Besides, escalating political tensions between Russia and Ukraine are to blame for the risk-off mood. All key stock indices have incurred heavy losses. Hence, it would be better to survive turbulent times, buying safe haven currencies and bonds. Meanwhile, the US dollar is following the uptrend. The greenback found support from expectations of the Fed’s aggressive monetary tightening. Currently, the US dollar index is trading at nearly 96.20, drifting higher in the corridor from 95.70 to 96.30.

The US dollar is holding the upper hand over its Canadian rival. Oil prices lost 2 dollars yesterday amid the collapse in the US equity market. In the meantime, the USD/CAD pair climbed to 1.2651. The expected corridor for the pair is between 1.2580 and 1.2680. The Bank of Canada is holding a policy meeting on January 26. The odds are that the regulator will venture into the first rate hike amid soaring inflation at a 30-year peak and strong employment. If the Bank of Canada actually raises its target overnight rate, this will be bullish for the Canadian dollar.

Bitcoin eventually received some support despite the overall bearish trend. On Monday, Bitcoin price created a few bearish candles one by one and first dropped to 33,000 dollars. Later in the second half of the day, the price recovered to 37,000 dollars. Indeed, the low price attracted buyers. Today, the digital token is trading at about 36,506, sticking to the upper border of the range between 37,303 and 33,130. Currently, the flagship cryptocurrency is trading way below its all-time high of 68,990. Back in 2010, Bitcoin was trading at mere 5 cents per token.

Clearly, the rhetoric and policy decisions of the Federal Reserve are market catalysts for the crypto market and the US stocks. Our analysts predict that both markets are set to reach the bottom and rebound with the following bullish wave. So, it would be a good strategy to open long positions cautiously at retracements. Our experts are ready to answer all your questions and comments. Stay tuned! See you tomorrow!

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