- Investors buy the dip but is the collapse over? Asian and US indices rebound as the US Session opens.
- The Dow Jones increases 0.40%, but risks remain without positive earnings data.
- Investors were reassured by potential significant interest rate reductions from the Federal Reserve. JP Morgan and Citigroup predict two large rate cuts in 2024.
- US economic data continues to remain weak, but economists advise no recession on the cards yet.
- Investors turn their attention to earnings from Amgen, Caterpillar and Airbnb.
USA30 – Will Amgen And Caterpillar Earnings Save The DJIA?
The Dow Jones, regardless of its exposure to defensive stocks, could not hold off the bears and fell 1.39%. However, during the US trading session shareholders did not continue to sell shares as leading economists indicated two large rate cuts by the Fed. In addition to this, economists assure investors that the data does not point to a recession but simply a slowdown. Will the Dow Jones continue to rebound upwards?
DOW JONES 1-HOUR CHART WITH BREAKOUT LEVELS
A potential upward correction for the stock market would depend on three factors. Ideally investors would like to see the economic data not deteriorate further, however, no major US data is due this week. For the Dow Jones to correct upwards, the upcoming earnings data will need to beat expectations to calm down nerves.
Amgen and Caterpillar will release their quarterly earnings report before the US session opens. Amgen is the fifth most influential stock for the Dow Jones and Caterpillar is the sixth. The two stocks make up 10.80% of the Dow Jones and both declined on Monday. Both Caterpillar and Amgen have beaten their earnings expectations on the past 4 occasions. If they can do so today, along with some positive forward guidance from the directors, a Dow Jones correction becomes more likely.
Though in the medium to long term, other risks remain. The decline on Monday was also partially due to the escalation of geo-political tensions in the Middle East. According to reports, Israel is on high alert and a full-scale war is possible between Israel, Iran and Lebanon. If tensions escalate, it could dampen sentiment towards the stock market and the over market risk appetite.
If the earnings data from Amgen and Caterpillar are positive and the price breaks above the current breakout level, a buy signal is possible. The current breakout level can be seen at $39,151.92. Though, if the price declines below $38,675 the price would form a bearish trend continuation pattern and signal a downward trend. Medium term targets for a bearish trend can be seen at $38,410.60 and $38,231 (Fibonacci).
USDJPY – The Yen Retraces But Investors Eye The Consequences Of Fed Cuts!
The USDJPY is winning back some lost ground after declining for five consecutive weeks. However, further downward pressure is likely as the Federal Reserve is likely to become a lot more dovish. According to the CME Group, the Fed is likely to cut 50 basis points in September, and 25 basis points in November and December.
USDJPY 1-HOUR WITH TREND-LINES
Nonetheless, even though the medium to longer term points towards a bearish USDJPY, the Japanese Yen is currently the day’s worst performing currency and is declining against all currencies. The US Dollar Index is currently trading 0.26% higher, but if the USDJPY drops below the 144.247 breakout level, investors will consider sell signals with 142.365 as their first target.
The Bank of Japan’s recent meeting minutes were “hawkish,” noting the yen’s fall as a factor in inflation requiring attention. Two board members advocated for an early rate hike. Additionally, July’s service PMI rose from 49.4 to 53.7 points, and the composite PMI increased from 49.7 to 52.5 points, indicating economic recovery and a higher likelihood of further monetary tightening.
Michalis Efthymiou
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
