The FED’s Pivot Is There. Can Markets Exhale?

First of all, stock and crypto markets reacted with a positive flow with Bitcoin growing above $62000 and S&P500 establishing yet another historical peak. Breadth and strengths of the market have improved according to the fear and greed index from CNN.

At the same time, we record yet another indicator showing improvement: a 10-2 spread, which stands from the ratio between values of 10-year and 2-year bonds of the United States, had exited a concerning red zone, which usually a recessional signal.

This might be not exactly a long-term relief and not necessarily an indication of upcoming bull market, as the US economy has been sliding into recession within 2 months after such a positive pivot, according to historical studies.

That might not be the case this time, as statistical models don’t always work, especially considering the upcoming election in the United States. Another statistical model points to an overall bullish expectations from the market during the election cycle.

However, the year of 2024 has already been very positive for stock indices, and some downturn won’t get it to the negative zone, while it may seriously affect market sentiment.

In the currency markets, we observe “the race to the bottom”: as the dovish pivot had started, capital will flow more to the currencies from countries with stricter monetary policy, such as Japan, whose central bank had left the interest rate unchanged.

The UK also had halted the interest rate decline during the latest decision from BOE, that’s why British Pound is also holding higher levels.

EUR/GBP

Euro might weaken against the the Pound Sterling due to differences in monetary policies of related central banks, and overall, technical trend of EURGBP. The market structure points to a decline, as EURGBP had not held well in the dynamic resistance area around 0.8400. We’ve witnessed a breakout of a intermediate-term consolidation area, so it would be logical for the price to accelerate towards a continuation of a downtrend.

Local strength and rotaion of capital to the British pound supports this idea.