FX.co ★ US market on December 21. Three consecutive days of falling. Correction. Rebound is expected

S&P500

The US market shows three consecutive days of falling and a correction.

The US indices were down again on Monday, with the Dow Jones, NASDAQ, and S&P 500 declined by 1.2%. However, the S&P500 index futures predict a strong rebound to the upside - futures increased to 0.8%.

The Asian markets on Tuesday: Japanese indices climbed by 2.1%, and Chinese indices - by 0.4%.

The energy market. Oil found support near $70 per barrel and rebounded strongly to $72.40 per barrel on Tuesday. Oil and gas prices will be supported by cold weather in the Northern Hemisphere in the near future as temperatures in Europe have dropped below zero, amid extremely high gas prices, except for long-term contracts, above $1,500 per thousand cubic meters. A sharp rise in electricity prices could make a noticeable contribution to inflation, which is already high. This may force the ECB to raise its rate and halt economic growth in the EU.

COVID-19 in the world. The fourth wave is still going strong, +558 K cases worldwide yesterday. The number of cases in the US is high again, adding 143,000 cases with the start of the week. The UK added 91,000 cases yesterday. However, the number of deaths is not rising, logging at 44,000 yesterday. If the number of deaths is low, it may be considered as proof that Omicron is not as lethal as it was expected. We need about another week of observations for conclusions in the UK.

The S&P500 index is trading at 4568 within the 4550 - 4600 trading range. We expect the market to bounce upwards and the formation of a strong bottom at yesterday's lows. The reason for the three-day drop in the US market is simple - the Fed announced policy tightening last week in order to combat high inflation in the US. The second reason is Christmas and the end of the year. Large market players were taking profits near the yearly highs. The US market is still trading at high levels now, even after 3 days of falling.

One of the risks to the global financial system and to the EU is the sharp fall of the Turkish lira, which dropped again yesterday to 18 from 16.4 TRY against USD. The lira has fallen by 60% against the US dollar since the beginning of the year. The reason is among other things the strange policy of Erdogan, who lowered the interest rate on the lira to 14% from 15% amid the fall in the exchange rate.

The last phase of the growth cycle usually triggers a lot of mergers and acquisitions. The volume of such deals in 2021 hit a record-high of $5 trillion.

US authorities have reported that Omicron has surpassed the delta strain in the US by the number of cases. Omicron is identified in 73% of new cases in the US. There were 625 deaths in the US yesterday.

The Biden administration is tightening fuel consumption requirements for cars. Starting from 2026, all new vehicles must consume not more than a gallon of fuel per 55 miles (about 4 liters). Currently, cars should cover 43 miles per gallon. The new measure will undoubtedly increase production and demand toward Tesla-type electric cars.

USDX is trading at 96.50 within the 96.20 - 96.90 trading range. The US dollar is trading near the upper boundary of the trading range. The EUR/USD pair remains within the range, too. The trend for the US dollar will probably be determined in the beginning of 2022.

USD/CAD is trading at 1.2925 within the 1.2880 - 1.2960 trading range. The pair retested a new yearly high, and currently maintains them. However, another reversal in oil prices to the upside may trigger another deep correction.

Conclusion. The markets may oscillate unpredictably, so investors need to take a cautious stance.