S&P 500 Chops Around Following Volatile Overnight Session
S&P 500, GBPUSD - Talking Points
- S&P 500 fails to sustain rally above 3720
- GBPUSD plunges 4% overnight before rallying
- FX markets remain in turmoil post FOMC rate hike
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US equity markets are lower on Monday as overnight volatility in FX markets continues to weigh on risk sentiment. A decline of 4% for GBPUSD saw the cross trade down to 1.0350 overnight. A resilient US Dollar has plagued risk markets of late, as traders price in tighter monetary policy and recession concerns.
The Fed’s aggressive tightening campaign has seen the US Dollar surge to fresh multi-decade highs, with many worrying about the implications of such a strong dollar. Fedspeak continues to remain hawkish, with Boston Fed President Susan Collins indicating on Monday that additional tightening is needed. US Treasury yields continued their stunning advance, with the 2-year yield trading as high as 4.34%.
Investors will likely remain on edge as major equity benchmarks sit perched perilously above their June lows. A lot will transpire between now and the start of the corporate earnings period, which may represent the catalyst for the next major move in markets. Corporate earnings have yet to be materially revised lower, despite growing calls for a recession in 2023. Additionally, the strong Greenback could see companies issue soft guidance for upcoming quarters which may compound the decline we find ourselves in.
S&P 500 Futures 1 Hour Chart
Chart created with TradingView
Following the choppy action during the overnight session, S&P 500 futures (ES) staged a strong rally into the 3720 area. This rally was promptly rejected as risk broadly sold off in the 11 AM EST hour. Surging US Treasury yields continue to weigh on stocks, and as long as markets continue to price in a more aggressive Fed, the longer equities will suffer. The rejection of the 3720 area saw a strong sell of nearly 60 points down to trendline support. If this trendline breaks, it may be just a short matter of time before ES revisits the June lows. All eyes now shift to Fed Chair Jerome Powell, who is slated to speak later this week.
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--- Written by Brendan Fagan
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.