Global macro overview for 05/01/2018

Markets are still in a euphoric mood as DJIA index and SP500 index are at the highest levels ever. The reason behind this behavior is that the recent great readings from the economy have caused the market participants to believe in the acceleration of inflation in the US. The most popular measure of inflationary pressure (a difference between 10- and 5-year swaps) has increased to the highest level in 8 months. On the other hand, the yields on short- and medium-term bonds beat several-year-long records. The profitability of the American 10-year-olds has risen to the highest level in nearly 8 years (2.28%), while the 2-year-olds are approaching 2%, which is the highest level in a decade. Also on this wave, the dollar is losing, because, behind the prospect of an increase in price growth, there is no adequate rise in expectations for interest rate hikes. The market still does not fully take into account three upward movements by 25 basis points until December. However, this might change very soon. During the year, the attractiveness of the US currency among the market participants might increase significantly, but for this to happen, the stock market must drop down the high performance level and make a highly anticipated correction.

Let us now take a look at the SPY (SP500 ETF) technical picture at the H4 time frame. The market made a new all-time high at the level of 272.16 in overbought conditions and despite visible bearish divergence. Currently, the level of 270.62 will act as a technical support, but the key level for a further drop is the technical support at 268.61.


The material has been provided by InstaForex Company -