What is next for US stock market and dollar?

SP500 index is now up more than +9% year-to-date, while the Dow is up +9.5% and the Nasdaq is up more than +7%. Bulls remain committed to their outlook for an economic boom, all of which is underpinned by the U.S. Federal Reserve’s continued easy monetary policies.

Fundamental analysis

Federal Reserve and monetary policy

Federal Reserve Chairman Jerome Powell reiterated last week that the Fed would continue to remain extremely accommodative until the economy has further recovered. Speaking during an IMF event, Powell pointed out that while parts of the economy are recovering strongly, “there’s a very large group of people who are not.”

The Fed Chair acknowledged the better than expected job gains in March and said the Fed would consider a string of similar monthly gains to progress. Also, Powell again pointed to the weak labor market participation rate as a disinflationary force that will keep temporary price spikes under control. What Powell seems more concerned about is the ongoing pandemic and rising infections across many parts of the world, noting that the “world economy” can’t return to normal until the virus is under control everywhere.

Vaccination

Keep in mind, many of our largest U.S. businesses get +40% or more of their revenue from the global economies. Obviously, it is going to take more widespread vaccination and better efforts in other countries to orchestrate a global recovery. The U.S. remains one of the leaders in vaccinations but there might be a little hiccup the next week or two, as Johnson & Johnson has run into some manufacturing snafus. The CDC said -85% fewer doses of the company’s vaccine will be shipped to states next week, though they did not provide a reason.

Around 15 million J&J doses had to be destroyed because of an ingredient mix up at a factory late last month. Traders are also keeping an eye on developments surrounding AstraZeneca’s Covid-19 vaccine which has been suspended in several country’s due to a possible link to blood clots. Unfortunately, the AstraZeneca drug is the dominant vaccine in use across the globe because of its lower cost and easier distribution. Most advanced economy countries that are using AstraZeneca’s drug also have vaccine supplies from other drug makers but the suspension will still mean a slowdown for vaccine rollouts in many parts of Europe and Asia.

AstraZeneca’s safety issues could mean no vaccine supplies at all for some developing countries where it’s the only option. An underlying concern is that these compounding safety issues, shot suspensions, and other hiccups could lead to an overall “crisis of confidence” in vaccine campaigns, meaning fewer people getting inoculated and delaying the global end to the pandemic.

News and data to watch

Next week brings the Consumer Price Index on Tuesday; Import/Export Prices and the Fed’s Beige Book on Wednesday; Empire State Manufacturing, Retail Sales, Industrial Production, Business Inventories, and the NAHB Housing Market Index on Thursday; and Housing Starts on Friday.

The main focus next week will likely be on Q1 earnings, with the season “unofficially” kicking off with results from big Wall Street banks Goldman Sachs, JPMorgan Chase, and Wells Fargo on Wednesday, followed by Bank of America, Citigroup, and U.S. Bancorp on Thursday.

SP500 technical analysis

So far SP500 futures still didn’t break above Gann’s resistance. Yet the weekly closing looks very strong. But we can consider longs at this stage only if this resistance turns into support. In that case, 4250 is the natural magnet. However, I am a bit skeptical it may happen.

I like to trade SP500 when Advance Decline Line and cycles give the same signal. At the moment, it is better to pay attention to commodities. There are few markets ready for big moves. At the same time, SP500 cycles turned to the downside, while ADL is very bullish. If we will see a divergence in ADL in coming week or two, I will look for a sell signal. But at the moment, nothing is clear yet.

Dollar Index (DXY) technical analysis

Overall, the Federal Reserve policy remains bearish for American currency in the long run. But we don’t have a strong fundamental setup to establish swing trades. So, I want you to pay attention to the smaller time frame. The dollar index (DXY) respects 4h MA50 and MA200 quite well. So, we can take advantage of that.

If the price breaks and sustains under 91.90, the price will reach 91.5 and 91 in extension. On the other hand, breaching the 4h MA50, the dollar will target the 93 – 93.5 zone.

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