Major stock futures have been posting record-breaking results driven by good economic data, huge fiscal stimulus, and expectations regarding an imminent economic recovery.
However, many of these stocks are already in the overbought zone if we analyze what the daily and weekly RSI indicators indicate. In the case of USA30, the weekly RSI is already slightly above the 80 area, a level that was only reached at the beginning of 2020, just before the crash before the pandemic's start. At the moment, there are no signs of retreating, but in this area, the indices could be more vulnerable.
An influencing factor in recent weeks has been the rebound in U.S. Treasury Bond yields. The concern regarding Fed’s potential rate hikes appears to hurt the valuation of stocks and, therefore, could cause corrections in the indices. Expectations of inflationary outbreaks could also have a negative effect. However, the market seems to have accepted as valid Fed's low-interest rates views for the moment.
This could signal a change in the investor's market approach and could be the reason why the previous correlations are lost. This will take some time to settle and obviously could change if new factors appear in the equation.
The U.S. Treasury Bond Yields rebound slightly today, rising above the 1.60% in the case of the 10-year Treasury note.
In the currency market, the U.S. Dollar weakened against all major currencies, despite long-term rates remaining high. The only exception was the USD/JPY pair, with the dollar strengthening against the Japanese currency.
After two weeks of continuous declines and having reached overbought levels on the daily chart, the pair rebounded to the current resistance zone of 108.50 and could only gain upward momentum if it exceeds the zone between 109.00 and 109.30. This scenario would only be possible by maintaining a positive risk sentiment in the market with long-term interest rates in the United States at the current levels or slightly higher.
Sources: Bloomberg, investing.com.