Another strong session for |US equities on Thursday with the tech sector leading the way once again. The tech-heavy Nasdaq 100 closed the session 2% higher, taking the gains so far this week to over 4%. The S&P 500 was slower to react to the strong momentum this week but has managed two consecutive daily gains of 1% on Wednesday and Thursday.

The Nasdaq 100 broke above a 9-month high on Thursday and is now hovering around the levels last seen in April last year. The tech sector’s performance has built up the gains so that the index is now 30% above the lowest levels of the year so far, seen in the first week of January. The chart shows continued bullish momentum with the moving averages neatly stacked below the price and the daily candlesticks have painted a nice pattern of higher highs and lows this week.

Nasdaq 100 daily chart

Source: tradingview

Meanwhile, the S&P 500, which contained the losses better throughout the latter part of 2022, has had less range of movement in the recovery so far this year, which has confined the price action to a tight range over the past 6 weeks. But this week’s rally has broken away from the range, achieving a 9-month high and looking for further traction above the 4,200 mark.

S&P 500 daily chart

Source: tradingview

Up until Thursday, it seemed that the market was dominated by a few, mostly the big names in the tech sector. This is likely because of the defensive properties these stocks have in holding value during turbulent times, which means that investors are growing concerned about the outlook. This would suggest the rally in the S&P 500 may not hold for long as growth stocks start to feel the pressure from portfolio realignments.

The verdict on whether the Fed will pause rates as of next month is not yet clear. There has been a wide range of Fed speakers this week and whilst some believe it is time to pause and allow the past rate hikes to take effect, some are still yet undecided on whether there is enough reasoning to stop the current hiking cycle given the levels of inflation and unemployment. Looking at the market-implied rate curve, the probability of no hike in June has gone down from 92% last week to 65% after the comments from Fed speakers, suggesting investors are growing unsure about the rate hike pause. They are also starting to doubt that the Fed will cut rates this year, something it has adamantly denied, with now just 45bps of easing by December, down from almost 100bps after the Fed meeting earlier this month.

US rate expectations

Source: refinitiv

In the FX space, the US dollar continues to make headway with the US dollar index now at a 10-week high, breaking above its 50-day SMA (101.88) and 100-day SMA (102.48). EUR/USD and USD/JPY are the most heavily impacted by the recovery in USD, with the latter having broken above its 5-month ascending triangle pattern.

EUR/USD, a heavyweight within the dollar index, is down 3% in the last two weeks and the pair is struggling to find support from buyers despite the pause in the pullback in today’s session. At this point, the rebound in the dollar seems slightly more technical than fundamental despite the slight flight to safety in the market.

USD/JPY daily chart

Source: tradingview

With regards to Gold (XAU/USD), sellers are also dominating the space this week as the precious metal drops below $1,960 for the first time since April 3^rd. The move lower has now cleared the 20-day SMA ($2,003) and 50-day SMA ($1,987) which suggests that the move lower may still have some further room to go in the short term. That said, there is a large demand for wealth preservation at present so these pullbacks should be seen as a way for new buyers to come in, and despite there still being room for further pullbacks, the longer-term outlook remains positive.

XAU/USD daily chart

Source: tradingview

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