A1 Trading Company

April 25, 2024

Risk Appetite May Cause Market Collapse

Frank Cabibi

Today, GDP numbers came out much lower than expected sending the dollar and yields much higher while stocks fell. How can this be when the market wants slower growth the economy, labor and inflation to prompt the Fed to cut rates? There is one key metric that indicates the market collapse of risk assets.

EdgeFinder Analysis

EURUSD is majority bearish on the EdgeFinder as the score declined further into the negatives to -11. Most pairs trading against the dollar are weaker after today's GDP report. But inflationary metrics are coming out indicating a further rise in inflation.

Core PCE m/m comes out tomorrow while quarter-over-quarter was released this morning. With the quarterly number higher than expected, investors expect the monthly report to be higher tomorrow. PCE is a key Fed metric for inflation; a higher PCE would be against Fed hopes to cut rates this year.

NAS100 falls premarket after poor revenue projections from META's earnings call last night and the recent onslaught of worse economic data. The combination of lower GDP and higher PCE this morning is weighing heavily on risk-appetite.

The risk of a market collapse seems more probable, especially if the remainder of big tech earnings this week come out worse than what investors expected. Right now, price is stuck between support and resistance on the 1D timeframe, and the next decisive move seems like it may be lower. If that happens, there is further support to test around $16,200 roughly.

Gold's score gets a slight tick up from the trend reading and poor GDP numbers. However, slower growth and higher inflation might not be good in this environment. The metal usually thrives off a worse US economy and monetary state, but it now may push the Fed's decision to cut rates back further down the line.

That is what's causing yields to jump this morning which is ultimately bearish for the metal. Geopolitical concerns may have subsided for the time being as gold investors look towards earnings and ecnomid data in the US.

Retail Spotlight

Retail may be right about US indices this time around as the majority are short S&P. However, Russell leans bullish which is the most interest rate sensitive of the indices. Metals are majority long but gold remains mixed.

Smart Money Spotlight

Bearishness on EURUSD can be shown in one chart. Rising retail optimism and lower COT positioning is a recipe for lower prices later on.

Here's the chart of historical GDP numbers since January of last year. We have seen a substantial decline in economic growth since October of last year. This drastic miss could spell disaster for risk appetite if Core PCE m/m comes in higher.

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