The major stock indices presented a volatile session yesterday, as economic data and China’s new policy to restrain economic growth, weighed on investor’s sentiment. Even though stocks pushed higher at the start of the session, Financials pulled the market lower, sending the major indices into negative territory.
Investors have been cautious to enter bullish positions, avoiding catching a falling knife, due to China’s recent news statement. The second largest economy after the United States intends to raise reserve requirements to prevent an additional bubble. According to recent data, growth in China exceeded analysts’ expectations and came out at a whopping 10.7% in the 4th quarter. Even though this is a good sign for the current recovery, the additional cash that was pumped into the system through various types of stimulus, could have a negative effect on the economy in the long run. Bank officials now fear that the vast amount of stimulus could lead to inflationary problems and ruin the country’s economic rebound.
Over in the U.S, economic data had a minor positive affect at the start of the intraday session as CB consumer confidence increased to 55.90 from 53.6, while the house price index jumped by 0.7% compared to an expected 0.5%. The S&P/CS Home price indices Composite -20 (YoY) dropped more than expected at -5.3% but showed improvement compared to its prior figure of -7.3%. When observing the chart below, provided by Standard & Poors one can see that even though there has a been an improvement over the last year, the index has not yet returned to stable levels.
From a technical point of view the major indices treaded around prior levels, after presenting a volatile session. The S&P500 index finished the day on support of 1090. The drop at the end of the session does not augur well going forward today.
Forex
On the Forex market the Dollar index traded around its prior level of 78.5 as investors prepared for a hectic Fed day today. Even though the index ended higher due to trader’s preference of the U.S Dollar, the Japanese Yen still managed to climb and increased throughout the session.
Although Japan’s outlook for sovereign was downgraded from stable to negative, the currency pushed higher as China triggered panic across the board. Meanwhile, the Bank of Japan left its rates at a low of 0.1% and commented on the recent economic improvement, by mentioning that confidence has recently improved.
Deficit troubles in the U.S also weighed on investor’s sentiment during yesterday as the Congressional Budget Office announced that the 2010 budget deficit could hit an astonishing $1.35 trillion. Even though the news was shocking for some and is expected to put pressure on the U.S Dollar in the long term, investors were reluctant to make any moves, as President Obama is scheduled to address the public and call for a 3 year freeze on discretionary spending. If this is the case, better than expected economic data and a lower deficit could have a positive effect on the U.S Dollar
Over in England the GBP/USD lost its ground throughout the session as England’s GDP result showed that the economy grew by a mere 0.1%, compared to an expected 0.4%. The positive result was widely attributed to the government’s car scrappage scheme.
From a technical point of view the GBP/USD is still trading in range and is now on minor trend line support. Ranging strategies should be used on this chart.
Market Data to Watch Out For
Even though today’s major event will be the Fed’s rate decision, a no-change decision along with a statement similar to the last one, might not cause major movement on the FX market. Many will be observing to see whether there will be any update on the exit program.
Daily Forex Market Analysis provided by eToro
Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.
