US open: Stocks drop, USD rallies as Fed fallout continue

Stocks set to open sharply lower, the US Dollar in the rise as a quiet economic docket leave investors digesting the Fed's move for another session. Beware of triple witiching!

USA (2)

US futures

Dow futures -0.95% at 33498

S&P futures -0.8% at 4190

Nasdaq futures -0.5% at 14080

In Europe

FTSE -1.4% at 7073

Dax -1.41% at 15509

Euro Stoxx -1.3% at 4104

Learn more about trading indices

Dow under performs again

US stocks are pointing to a sharply lower start, with the Dow under-performing its Wall Street peers for a second straight session. The Dow closed -0.6% lower in the previous session, whilst the Nasdaq closed 0.87% higher.

The reflation trade which saw investors rotate out of high growth and into value stocks looks to be unwinding. As the tech heavy Nasdaq hit a fresh record high on Thursday, the Dow broke below a key support.

The timing of this unwinding is interesting, because it comes as the Fed indicates towards tighter policy. Usually, higher interest rates are supportive of gains in cyclicals and value stocks. Perhaps the Fed has calmed the market that inflation won’t overheat?

There is no high impacting US data due today and the earnings calendar is also quiet. It is however, triple witching Friday with options and futures on indices and equities set to expire. This can lead to higher levels of volatility.

Equities

Adobe trades +3% pre-market after reporting Q2 results which easily beat forecasts. EPS came in at $3.03 on revenue of $3.84 billion.

Where next for the S&P500?

The S&P 500 extends declines from its all time high of 4267 reached earlier in the week. The price has fallen below the 50 sma on the 4 hour chart but remains supported by the 200 sma and the ascending trendline dating back to November. Strong support can be seen at 4195, the confluence of the 200 sma, the ascending trendline and the weekly low. A move below this level could see the downside gain momentum. A move above 4230 the 50 sma is required for the buyers to look again towards 4267.

FX – USD trades at 2 month high, GBP falls on weak retail sales

The US Dollar continued to drive higher on its post Fed buzz. The US Dollar Index trades at a two month high.

GBP/USD trades under pressure following worse than forecast retail sales. UK retail sales unexpectedly declined in May by -1.4% MoM, this was down from an impressive 9.2% increase in April as non-essential retail re-opened.  Expectations had been for a rise of 1.6%. The weaker print is unlikely to be owing to falling consumer confidence but rather than households are spending money on eating out as indoor hospitality reopened on May 17.

GBP/USD  -0.2% at 1.3895

EUR/USD  +0.05% at 1.1910


Oil slips lower on USD strength

Oil prices are moving lower for a second straight session, although the uptrend remains intact. A stronger US Dollar after the Fed’s hawkish surprise has weighed on demand for the US Dollar denominated commodity. Fundamentally the picture remains sound for oil which is keeping losses limited. International travel is on the cusp off kicking off again as the EU adds the US to its safe travel list.

Concerns over Iranian oil flooding back into the market have lingered over recent weeks as Iran and the US hold direct talks over reviving the 2015 nuclear deal. Iran’s top negotiator said progress was being made on Friday. However, the election of a new President in Iran who is already sanctioned by the US is unlikely to help relations.

US crude trades -0.6% at $70.41

Brent trades -0.67% at $72.06

Learn more about trading oil here.

The complete guide to trading oil markets


Looking ahead

18:00 Baker Hughes rig count


How to trade with City Index

Follow these easy steps to start trading with City Index today:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for the market you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.



Build your confidence risk free

More from Interest rates

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.