03.05.2021: Correction in the US market still may come (S&P500, DXY, USD/CAD, BTC/USD)

The US stock market is showing signs of exhaustion. The apparent reason for a decline was inflation acceleration, including an increase in the PCE price index in the first quarter. Besides, the US Fed stated its stance on growing inflation in the policy update last week. The US central bank is facing a dilemma. On the one hand, the regulator wants to stick to its ultra-loose monetary policy. On the other hand, it has no other tool against inflation, but tightening of monetary policy. In turn, a rate hike could stall economic growth and cause a downturn in financial markets.

00:00 US Fed dilemma
00:48 S&P500
01:36 DXY
02:07 USD/CAD
02:35 Bitcoin

Today the S&P500 has risen a few percentage points. Now it is trading at near 4,195. Such an elevated level is possible as investors had high expectations for US PMIs for April. Indeed, such expectations came true. Despite weak quarterly reports from Twitter and Chevron, the S&P500 index is capable of extending its climb. Analysts are speculating on whether it will be able to surpass 4,200. The odds are high. Bearing in mind technical correction, the index is expected to trade in the corridor of 4,180 to 4,220.
The US dollar index picked up steam on Friday, taking advantage of the euro’s decline. So, the index touched a solid bottom at near 90.40. On Monday, the US dollar index jumped to 91.300 and later corrected downwards. It is likely to hold in the corridor of 90.800 to 91.100 until tomorrow. Indeed, the greenback could edge down in case of a negative manufacturing PMI from the Institute for Supply Management.
Interestingly, the US dollar cannot assert strength against its Canadian counterpart. Perhaps the greenback has not found support against the Canadian dollar yet. The USD/CAD pair is expected to trade in the corridor of 1.2200 to 1.2400 today. Nevertheless, the odds are that the loonie will weaken in case of a slump in oil prices.
An interesting situation is unfolding in the crypto market. Bitcoin is again developing an upward cycle, having reached the level of 58,500 dollars. Other cryptocurrencies also leapt, quickly following suit. For instance, Ethereum gained ground without any information background. The main reason is a market buzz amid massive profit taking at the end of the month. Bitcoin is projected to overcome the milestone level of 60,000 dollars.
Fast consumer inflation proves that there is too much cash in circulation in the US. Personal income surged to the greatest extent on month since 1946 as Americans were provided with stimulus checks from the state budget. Besides, the PCE price index, the Fed’s key criterion, has climbed to the highest level since 2018. Nevertheless, the central bank does not consider such inflation acceleration to pose a threat to the economy. They reckon that inflation spiked in light of financial aid paid to all citizens. Eventually, this could set the stage for a large downward correction of US stocks.

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