The US dollar is ending the week on the back foot, as risk sentiment improves in the financial markets. Investors interpreted Jerome Powell’s statements on Wednesday as a tilt towards dovishness from the Federal Reserve, assuming that ‘data-dependent’ can be translated into a slowdown in the pace of monetary tightening. With a recession looming, a scenario confirmed by recent GDP data, many observers estimate that the Fed will reduce the pace of rate hikes in order to ease the pain of the economic contraction. Against such a background the dollar lost some of its shine, in a dynamic that could fuel further risk appetite and support asset classes, such as technology, which were penalized by the withdrawal of stimulus during the first half of the year.
Ricardo Evangelista – Senior Analyst, ActivTrades
Stocks continued their rally in Europe on Friday, alongside US futures, as market sentiment improved following reassuring macro data in addition to positive corporate results. While today’s trading optimism was initially sparked by strong Q2 reports from Apple and Amazon yesterday evening, this morning’s surprising GDP data from Spain and France are driving European benchmarks significantly higher. However, even if July has seen the best performances on stocks in almost two years, many wonder if this current rally will continue further. The current wind of relief has been brought by short-term bullish leverages such as strong corporate results, but the underlying problems that have been driving riskier assets down since the beginning of 2022 remain. The overall environment remains bearish on the long-term for stocks, as traders continue to monitor rising inflation, mounting recession risks as well as tighter monetary policies, and this is likely to prevent most investors to go all out on equity markets for some time at least. That said, investors will be monitoring the new EU CPI figures this morning while Core PCE Price Index data from the US looms in the afternoon.
Pierre Veyret– Technical analyst, ActivTrades
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