Obviously many investors will question themselves whether what they see is already a beginning of the new long-term bull market or just a corrective movement in the bear market. Unfortunately this usually is hard to tell before we hit either new lows or get somewhere in the middle of the bull market. Nevertheless, there are some good indicators from the past. If we analyze all bull markets since the Great Crash on the S&P500 we might notice that in fact all of them were accompanied by a significant drop of volatility, in fact to levels lower than a long-term average. Moreover, bull markets since the second World War were usually signaled or at the very least shortly confirmed by a noticeable rise in industrial ISM. Is that was we are observing right now? The volatility has indeed dropped from its peaks but it is still far above a long term average. The ISM has noticed a remarkable improvement from December’s low at 32,9 pts., but is still (at 40,1 in April) way below 50 point threshold marking a
difference between expansion and contraction. Therefore, we are still about to receive a confirmation of these positive signals.
The optimistic scenario has been already priced into the USDJPY currency pair, breaking through an upper band of 3-week declining channel after the Fed’s statement last Wednesday and rising towards a support of 100,00 and potentially to 101,43-101,62.
This week the market is about to focus on activity in services (Tuesday in the US, Wednesday in Europe) and labor market data in the US (ADP on Wednesday, payrolls on Friday). Central banks’ meetings in Australia, UK and the euro zone are about to be somewhere in the background, although a conference after the ECB meeting has some potential influence on the EURUSD as investors will be looking for a clear statement of the end to a rate cutting process.
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Przemysław Kwiecień  |
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