Forex Analysis & Reviews: 10.09.2021 - US stock market may enter...

10.09.2021 09:13 AM

US stock market may enter correction

The US stock market seems to have finally entered a correction. The main US stock indices have been dropping for the third day in a row on Thursday. The Dow Jones lost 0.4%, the NASDAQ composite declined by 0.25%, and the S&P 500 dropped by 0.5%. However, these are only small signs of correction. According to the S&P 500 index, the US market has fallen by only 1% in three days. Investors are not in a hurry to sell shares, hoping that growth will continue.

The main event of the week was the ECB meeting on Thursday.

The ECB decided to keep the interest near zero. The central bank reiterated the PEPP envelope would be maintained at €1.85 trillion until at least the end of March 2022. "The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates," the statement said. However, the ECB admitted the possibility that the asset repurchase program may be reduced and not the entire amount of the program's funds will be used. Thus, the ECB makes it clear that its stance on monetary policy is similar to one of the US Fed. Yet, the implementation may take place later.

The US unveiled jobs data. The initial jobless claims dropped to 310,000 from 345,000. The continuing jobless claims declined to 2.78 million from 2.8 million, undershooting forecasts.

Asian stock markets closed the week with strong growth, ignoring the decline of the US stock market. Stock indices in Japan and China gained 1%.

The S&P 500 is trading at 4,490. It is likely to stay in the range of 4,450-4,520. On Thursday, the stock market rose at the beginning of trading. Many traders used this increase as an opportunity to lock in profits. So, the equity market closed in the red. Judging by the technical indicators, we can see signs of a correction. Usually, large funds start buying stocks after the S&P500 index drops to the 50-day average. If today the index loses another 8 points or almost 2%, it will touch the 50-day average. Such a decrease of the index to 442 may indicate the future trajectory of the market. Today, investors are anticipating a report on US producer price index for August. The reading is projected to decline to +0.6% from +1% in July. If the report shows an increase in prices, stocks will continue to fall. Bear in mind that the indicators of 0.6% and 1% are the so–called seasonally adjusted values. In July, consumer prices increased by 8% on the annual basis, while core inflation advanced by 6% on the annual basis. Prices for consumer goods grew by 12% and services climbed by 6%. Notably, it is not retail but wholesale prices (producer prices). These figures show that the Fed may face devastating consequences if it does not tighten monetary policy.

The third wave of the coronavirus is still gaining momentum. There were 607,000 new cases in worldwide yesterday. The US recorded 160,000. This is the highest number of cases compared to other countries. The UK occupies second place with an increase of +38,000. The Singapore authorities have announced a radical change in the approach to coronavirus statistics. They will publish statistics only on severe cases. Notably, 80% of the population has been vaccinated in Singapore. In Europe, 62% of residents are vaccinated, in the US, a little more than 50%. In Russia, no more than 25% of people are vaccinated.

The US dollar index is trading at 92.40. It is likely to remain in the range of 92.00–92.70. It declined on Thursday despite the ECB soft stance. The US dollar lost ground. It is likely to trade in the same range until the Fed meeting on September 22.

The USD/CAD pair is trading at 1.2640. It is likely to stay in the range of 1.2560–1.2730. The pair drifted lower after the weakness of the US dollar.

The US stock market may continue to decline. It is recommended to monitor how it will end the week.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.