The American financial market received a noticeable surge of optimism on Wednesday amid ongoing hopes that the resumption of negotiations between Joe Biden and Congressional leaders from the Republican and Democratic parties would lead to a resolution of the government's upcoming default issue.
Against this backdrop, local stock indices gained significantly, and shares of the companies with strong debt burden but good prospects have increased in price.
On Forex, the US dollar stopped rising, reflecting the easing of tension in the markets and the drop in demand for safe-haven assets that the US dollar belongs to. Crude oil prices jumped despite data showing an increase in crude reserves in the United States.
The statement by JPMorgan Chase & Co CEO J. Dimon that the US government is "unlikely" to default on its debt obligations also contributed to reducing overall tension. Even the publication of weak retail sales data and their volume in the US the day before couldn't spoil investors' mood. This fully indicates the all-encompassing importance of the national debt issue and its influence on market sentiment.
Should we expect a final shift in the market sentiments from negative to positive?
We believe that until the national debt issue is resolved, markets will continue to react nervously. If, for example, today's negotiations show some progress, US stock indices are likely to resume growth while the greenback is expected to ease across the board. At the same time, the absence of any news could lead to profit-taking and a pullback in stock markets whereas the dollar's rate will increase.
Key events for today include the report on secondary housing market sales, the number of initial jobless claims for the past week, and the manufacturing activity index from the Philadelphia Fed.
Secondary housing market sales in April are expected to be revised downward to 4.30 million from 4.44 million. The number of jobless claims should decrease from 264,000 a week earlier to 254,000. The Philadelphia Fed's manufacturing activity index, according to the consensus forecast, should also rise from -31.3 to -19.8.
Should we expect any reaction to this data?
We believe the market is unlikely to respond to this news as all its attention is focused on the resolution of the national debt crisis in America.
Overall, the market is expected to stay in a sideways mode until this issue is resolved.
XAU/USD
Gold is currently trading above the strong support level of 1,974.00. In case of any progress in the US debt ceiling issue, the price is likely to slip below this level and fall to 1,945.00.
USD/JPY
The pair is trading near the high of May 1 and above the support level of 137.25. A deterioration in the market sentiment may push the price below this range and send it to 135.70.