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Fundamental Analysis for the U.S. dollar Pre-Sydney Open for TVC:DXY by SteadyTradeAI

Global markets have been left licking their wounds this week, as a variety of external factors have caused mood to sour somewhat following what has been an amazing run for stocks over the past several months, according to the Financial Times. Investors may be a bit perplexed as to what has been driving market sentiment in recent sessions since there is so much going on in the globe at this point in time. One of the most contentious issues is the continuing spread of the Delta strain across the globe, with a substantial increase in the number of cases being reported in countries such as the United States, China, and Australia. Even with high vaccination rates, it seems that the virus is still extremely contagious, casting doubt on the possibility of a return to normality and, with it, a complete economic recovery in the near future.

However, equities had been doing well up until this week, when the Federal Reserve published its meeting minutes from its most recent meeting in July, indicating that tapering of asset purchases was now being contemplated by the central bank . The fact that the Fed has publicly acknowledged this move comes as no real surprise because economists have been predicting it for months. However, the fact that the Fed has publicly acknowledged it makes it just that little bit scarier, which is what some economists have cited as the primary reason for the stock market selloff. While looking at the bond market, rates have maintained their decline this week, which is in contrast to the reaction you would anticipate after hearing the Federal Reserve announce tapering, the first step in unwinding its ultra-loose monetary policy .

In light of this reaction, I believe that there is a little more to it than just concerns about less flexible financing conditions, with it most likely being a combination of tapering, economic growth concerns, and virus concerns, in addition to a market that had become overstretched after months of outperformance, among other factors. Looking forward, the Jackson Hole symposium is expected to be one of the most important risk events for stocks next week, as investors will be paying careful attention to the comments made by central bankers at the conference. Mr. Jerome Powell, as many experts anticipate that a formal announcement of tapering asset purchases will be made at this meeting, with the start date as soon as September or November this year, will be Jerome Powell’s crowning achievement.

If the news is verified, I would anticipate stocks to experience another pullback, but the extent of its follow-through is likely to be limited unless other external variables deteriorate at the same time, which is unlikely given the confidence that the announcement will take place. Alternatively, if Powell decides to put a pause on tapering discussions for the time being, we might see markets gain a little momentum and reverse some of this week’s declines.

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