Market Outlook: Watch for Volatility, Bearish Trends in Forex and Stocks
High levels of uncertainty have influenced market sentiment for several months and the outlook for the next two weeks is more of the same animal spirits. Uncertainty can trigger price action and volatility so investors may see opportunities as bearish trends play out in the Forex and Stock markets.
The story of the EURUSD continues to show US Dollar strength versus a Euro weakened by geopolitical woes in Ukraine, high crude oil prices, inflation and recession fears.
The US Dollar also faces domestic headwinds such as high inflation, but the Federal Reserve’s monetary tightening is making USD-denominated assets like Treasury bonds more attractive to safe-haven investors.
Trading events ahead this week include US core CPI results on Wednesday, May 11th. Although it is always a major trading event, at this time, traders are even more sensitive and reactive to inflation benchmarks and the results may trigger price action in the USD currency crosses. If inflation stays on a rising trend, the Federal Reserve may need to take more drastic measures to get high prices under control.
Stagflation fears subsided after another strong job report for April, but the risk of low growth and high inflation lurks in the back of traders’ minds. A decline in CPI would go a long way to reassuring traders that the Federal Reserve’s hawkishness is having an impact on inflation.
Interested in more fundamental analysis? Join Admirals Webinars!
US stock markets are still showing volatility on the back of slower growth in the first quarter and questions about the pace of monetary tightening. After a bearish trend in US stocks in the first week of May, there may be more declines to watch out for, creating opportunities to go short for investors who follow that strategy by trading CFDs on stocks or indices. Bargain hunters may also take opportunities as prices dip.
The balloon in certain sectors like technology stocks has popped, meaning that some high-priced stocks declined enough to make them more affordable, stimulating buying interest and resulting in short-term recoveries amid the overall bearish mood.
The complex economic and financial situation merits an emphasis on research, clear strategies and risk management to navigate market opportunities.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.