One of the more unique dynamics is the relationship between economic indicators and market sentiment with respect to directional bias. Remarkably the bias tends to change with respect to economic news and central bank posturing. An important measure is the relationship between the US dollar and its value compared to other currencies.
Market participants witnessed increased strength in the EURO/USD in yesterday’s trading resulting in increased volatility in Europe and US based securities. The move in the EUR currency was on the heels of Draghi’s commentary yesterday morning.
This morning we see a return to strength in European and US markets. This type of reactions has become quite normal as knee-jerk reactions lead initial volatility.
Market sentiment among the larger traders and investors will continue to remain reactive to commentary, macro economic news, and the value of the US dollar in relation other currencies.
Analysts tend to discuss the US currency as they relate to stock performance closer to earnings season. The caveat that resurfaces is that US dollar strength impacts companies that have a strong international presence.
Next week, market participants will take into further considerations the FOMC’s decision on interest rates and the overall US, global economies, currencies, and commodity prices. The interesting dynamic will revolve around the reaction not just in the currencies and major stock indices but the short and long term interest rates.
