Bull Market Driven by Optimism

Investor sentiment remains highly optimistic, driven by strong earnings reports and a robust rally in technology stocks, particularly those related to artificial intelligence (AI). This optimism persists despite mixed economic indicators, such as slowing retail sales and slightly easing inflation. The AI-driven rally and hopes for Federal Reserve easing have propelled all major U.S. indexes to fresh intraday record highs.

Top Performers and Laggards

Among the Dow’s 30 companies, American Express and Amazon.com have emerged as standout performers, with year-to-date gains of 29% and 22%, respectively. In contrast, Intel has struggled, down 37% due to lagging behind competitors in the AI components market. Boeing also faces challenges, with a 30% loss following safety concerns over its MAX 9 jet.

Market Sentiment and Expectations

The overall market sentiment is buoyant, supported by expectations of interest rate cuts and enthusiasm around AI. Walmart played a significant role in pushing the Dow past 40,000, with a 6% rise on strong fiscal first-quarter results. The S&P 500 and Nasdaq Composite also achieved new record highs, each rising 0.3%. The Dow has gained more than 6% in 2024, while the Nasdaq and S&P 500 are up 11% each.

Economic Indicators and Earnings Reports

Recent economic data presents a mixed picture. Initial jobless claims slightly decreased to 222,000, while continuing claims rose to 1.794 million. Building permits fell below expectations, though housing starts showed a modest increase. Import prices jumped 0.9% in April, driven by rising food and fuel prices, indicating ongoing inflation pressures.

Market Forecast

Looking ahead, the Dow Jones is expected to maintain its upward momentum. The combination of strong corporate earnings, investor enthusiasm for AI, and anticipated Federal Reserve interest rate cuts suggests a bullish outlook. Continued optimism and technical momentum are likely to drive further gains in the near term, reinforcing the bullish market environment.

The euro has bounced more aggressively than gold against the dollar since the middle of last month as economic conditions and, possibly, rates in the EU and USA show more signs of converging. Eurozone-wide annual headline inflation has been 2.4% for two months running and seems likely to remain below 3% for the rest of the year barring significant surprising circumstances.

The upward movement gained significant momentum on 15 May but the price has now moved into overbought based on the slow stochastic. With a new high having been reached around $1.09, there’s the possibility that this might be a new uptrend. However, to trade on this basis would probably mean waiting for a higher low both for confirmation of the possible uptrend and to reduce the risk associated with entering around a five-week high. Buyers would also probably look for neutral signals from Bands and the stochastic and increasing volume of buying before committing themselves.

The death cross of the 50 SMA below the 200 might be ignored given the fundamental situation and recent candlesticks, but this value area could be important if there’s a retracement lower over the next few days. $1.10 is an obvious candidate for the next key resistance while a move back below $1.075 seems unlikely unless there’s a major driver from news. Final eurozone-wide inflation at 9.00 GMT on 17 May is unlikely to be surprising, so the next major release for the euro is German GDP on Friday 24 May.

This article was submitted by Michael Stark, an analyst at Exness.

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.

Important DisclaimersThe content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party’s services, and does not assume responsibility for your use of any such third party’s website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.Risk DisclaimersThis website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.

Important DisclaimersThe content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party’s services, and does not assume responsibility for your use of any such third party’s website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.Risk DisclaimersThis website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.

Trendlines Indicate Higher Prices for Gold

Of note is the relationship of the price of gold with two trendlines. The more significant line is the rising line connecting the recent May 3 swing low, as it covers a longer time frame than the second line. If gold stays above that line, it can be anticipated to continue to strengthen. Also, gold rose above the downtrend line starting from the April 12 record high of 2,431 yesterday, and it exceeded the prior trend high at 2,378 as well. Wednesday’s close was above both the line and prior trend high thereby confirming strength.

Second Breakout of Trend Channel in Process

Moreover, yesterday’s advance ended clearly above the longer top rising channel line, triggering a second bullish breakout from the parallel trend channel. Will the second breakout lead to upside follow through? Certainly, it is starting to look that way. In addition to the trendlines noted above, the purple 20-Day MA is critical support if a retracement begins. It happens to match the price represented by the rising trendline today at 2,334.

Breakout Above 2,397 Triggers Bullish Continuation

A decisive rally above today’s high of 2,397 provides a bullish signal. If this occurs the record high of 2,431 is the next target. Gold is likely to then continue to advance into new record high territory. The first new high target is around 2,461/2,462, marked by the confluence of two Fibonacci levels. It includes a 161.8% extension at of the retracement from the decline that began off the August 2011 trend high of 1,921. Therefore, it is potentially a significant price level as it covers a long period of time.

For a look at all of today’s economic events, check out our economic calendar.

Further Tests of Support Would be Normal

Nevertheless, a pullback to test support of the downtrend line may still occur. That would not change the improving bullish outlook in Bitcoin as it would be normal to test prior resistance as support. However, a decline to below 61,300 is a deeper pullback that will raise concerns about its ability to continue to strengthen in the near term.

Advance Above 66,773 Gives Bullish Signal

A decisive rally above today’s high of 66,773 triggers a bullish continuation of the advance. There will then be two initial price levels to watch for possible resistance. The first is around 68,671 as it was the prior record high from November 2021. Bitcoin should plow right through it as it did initially in early-March of this year.

It will be the second time that a breakout above the 68,671-price level was attempted. And therefore, it should have greater success, first testing the recent record high of 73,836, and then proceeding to new record highs. Nonetheless, there is an interim price target at 70,368/69. That is the completion of an initial target for a small rising ABCD pattern, as shown on the chart.

Strength Also Seen in Weekly Chart

Also, strength can be seen recently in the weekly chart (not shown). Two weeks ago, Bitcoin hit a retracement low and completed a potentially bullish hammer candlestick pattern. A bullish breakout was triggered last week but the advance quickly stalled. Instead, this week the upside continuation occurs with Bitcoin now on track to end the week possibly at a four or five-week closing high. If that happens, it will be well on its way to approaching new trend highs.

For a look at all of today’s economic events, check out our economic calendar.

Can Strength Continue?

Certainly, today’s bullish price action is a sign of strength as natural gas recently busted through three price zones that could have seen resistance, especially the 200-Day line. However, can demand remain strong enough to take out today’s high and keep rising? That remains to be seen.

Rally Extended

The current rally is extended and closer to a top than it has been. As of today’s high, natural gas is up by 62.7% from the April 25 swing low at 1.58. That makes the current rally the largest on a percentage basis since the initial trend low from February 2023. Nevertheless, if the 200-Day MA can continue to act as support, the price of natural gas has a chance of continuing its rise. The next higher target zone is at 2.68 to 2.70. Those price levels are the 61.8% Fibonacci retracement and a 127.2% extension of a 51.8% measured move (purple arrows) that matches the rally beginning in August 2023, respectively. The high target is the top blue dashed falling channel line.

Drop Below 2.39 Should Lead to Deeper Pullback

A decisive drop below the 200-Day MA may provide an initial indication that a retracement may be coming. But a drop below today’s low of 2.39 will provide a clearer short-term bearish signal. Potential support from the 20-Day MA is down at 2.07. Higher price levels to watch on the way down are marked on the chart in black right extended lines from prior swing highs and lows. They include 2.31, 2.23, and 2.17. Fibonacci levels will be added on the chart if a retracement begins.

For a look at all of today’s economic events, check out our economic calendar.

However, other stats included the Philly Fed Manufacturing PMI, housing sector data, and industrial production figures. The weaker-than-expected numbers supported expectations of a September Fed rate cut. The Philly Fed Manufacturing Index fell from 15.5 to 4.5 in May, with industrial production flat in April.

The US equity markets reacted to the stats and FOMC member speeches. On Thursday (May 16), the Dow fell by 0.10%. The Nasdaq Composite Index and S&P 500 ended the session down 0.26% and 0.21%, respectively.

US equity market trends from Thursday will set the tone for the Friday (May 17) Asian session.

Asian Economic Calendar: China in Focus

On Friday (May 17), the Chinese economy will be under the spotlight, with industrial production, fixed asset investment, retail sales, and unemployment numbers in focus.

Economists forecast fixed asset investments to increase 4.6% year-to-date, year-on-year in April, after rising 4.5% in March. Furthermore, economists expect the unemployment rate to hold steady at 5.2%.

However, the industrial production and retail sales figures may impact market risk sentiment more, with investors eyeing the demand environment. Economists predict retail sales to increase 3.7% year-on-year in April after rising 3.1% in March. Moreover, economists expect industrial production to advance 5.4% year-on-year after rising 4.5% in March.

FOMC member Christopher Waller is on the calendar to speak on Friday (May 17). A similar stance could temper investor expectations of a September Fed rate cut. In a recent speech, Christopher Waller said there was no rush to cut interest rates. Waller spoke before the US Jobs Report and inflation numbers. A change in stance warrants investor attention.

While inflationary pressures eased, the US labor market remains tight. Tight labor market conditions could support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on central bank chatter. Calls for a higher-for-longer Fed rate path could tilt monetary policy divergence toward the US dollar. Economic indicators from Japan need to signal a shift in momentum for investors to consider the possibility of a BoJ policy move.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY break above the 156 handle may give the bulls a run at the 158 handle. If the USD/JPY returns to 158, the April 29 high of 160.209 could become the next price target.

On Friday, Bank of Japan and FOMC member commentary need consideration.

Alternatively, a USD/JPY break below the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 54.20 indicates a USD/JPY move to the April 29 high of 160.209 before entering overbought territory.

Important DisclaimersThe content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party’s services, and does not assume responsibility for your use of any such third party’s website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.Risk DisclaimersThis website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.