First Break Under for S&P 500 in five Days, Lengthiest Streak for USD/JPY in five Decades

Oct 20, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

Tesla, earnings, the recession, the dollar, and the USD/JPY 

The viewpoint of the market: Gold is gloomy under 1,680 and USDJPY is weak below 146.

The S&P 500’s string of positive gaps has been snapped, but the reversion hasn’t exactly signaled a strong bear trend.

The primary near-term event risks, according to Fed language, have been earnings and overseas inflation, but the themes next week or the entirely unexpected might lay the groundwork

We were relying on borrowed enthusiasm for the first half of this week. The uneven climb, on the other hand, may have finally come to rest against the ominous barrier of anticipation. Without a traditional foothold, it will be difficult to encourage progress on speculative appetite with the impressive density of thematic releases on the economic docket next week.

This session appears to have already recorded a critical slip. Even though there wasn’t much action during Wednesday’s New York session’s active trade, the S&P 500 opened with a gap of -0.5 percent. This is a big change from a series of growing bullish gaps (including the biggest upside jump since November 2020).Although the correction is evident, it does not exactly support a conviction for the bears. Technical support, such as the 20-day SMA, could serve as former resistance and new support, but the weight of anticipation for the serious run event risk next week appears to be more able to reach a critical mass of conviction.

Short-term volatility is still possible despite the fact that the anticipation surrounding FAANG earnings and US 3Q GDP next week may put an end to medium- and long-term trend development. Numerous potential causes of volatility are still unfolding .While earnings are registering on the market’s Richter scale, this session’s tangible UK and Canadian CPI releases would not have a significant effect on the Pound or the Canadian Dollar.

A gap higher equivalent to the after-hours trade was earned by Netflix Tuesday after the close, but there was nothing more significant in terms of NFLX’s follow-through. The beat ($3.10 EPS versus $2.20 expected) came from Netflix. Furthermore, the Nasdaq100 and QQQ ETF did not significantly change in response to the performance.

Given that Tesla would beat EPS with $1.05, as opposed to the $0.99 that was anticipated, despite missing revenue, should we anticipate anything more substantial from the company’s report after the close of the current session.  Its numbers and background are murky, despite the fact that it is the sixth largest company by market cap worldwide.

Dollar Strength and Other Systemic Factors without a stronger fundamental push in the interim, I believe it will be extremely challenging to steer the market toward a trend, given the speculative eye that is looking off into the distance. It would appear that systemically significant abstractions are lurking threats if there were any source of overriding thematic pressure. The consequences of an unrelenting dollar pressure are one example of this contention.

This past session saw a rise in the DXY Dollar Index, but neither the EURUSD nor the GBPUSD reached new multi-decade lows as a result. In contrast, the USDJPY has reached a new 32-year high. Although clearly divergent monetary policy bearings, growth forecasts, and relative risk perception all play a role,  We don’t think the Greenback’s buoyancy was entirely necessary for this pair.

From our perspective, this couple is extremely tense. We are on the verge of a loaded round figure (150), which is in total disobedience with the wishes of the Japanese Ministry of Finance, and the 11 consecutive session charge is the longest bullish stretch since 1973.

USDCNH is yet another dollar cross that requires some thought. Although the exchange rate between the dollar and the yuan is not exactly a bastion of free-market reflection, the equilibrium that exists between the two largest economies in the world is extremely important.

However, during this session, the cross reached its highest level since early 2008, which may or may not have been sanctioned by Chinese policy officials. Although this new high exchange rate isn’t really subtle, there is an effort to keep the docket and newswires as passive as possible during the National People’s Congress (hence the delay in the release of the Chinese 3Q GDP).

This deliberate influence on the exchange rate could be described as a conspiracy to benefit an export economy, but it could also be argued that the economic outlook is further taxing the key. This past session, Jeff Bezos of Amazon joined the fray to warn of a recession. As a result, there may still be room for short-term volatility over the next few days; however, our primary interest and concern is whether the market charge can overcome expectations of what will occur after the weekend.

We will be keeping an eye on capital flows in China, reports on US housing activity, growth-oriented earnings (CSX), and possibly a more focused potency or the anticipated Turkish central bank rate decision for today’s session. While relative currencies and indices may exhibit volatility, this does not appear to have a significant impact on the entire financial system.

The schedule is packed with high-profile events beyond the weekend. The following are among my top calendar items: the PMIS for October; earnings from FAANG; confidence among Americans; the decisions regarding rates made by the ECB and BOC.GDP for the third quarter in the United States, Germany, and more. Even though this event risk can have a significant impact, the anticipation leading up to it may be even more consistent in reducing traction.

Technical Picture – S & P 500

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