Risk Sentiment Stabilises As USD Rally Pauses
Global equities benchmarks are seeing better demand on Tuesday following a tricky start to the week for most. An early rally in USD yesterday weighed on sentiment, driving global stock prices lower, before a reversal in the greenback allowed risk assets to stabilise and recover. The driver behind the initial action yesterday was the fall-out from Powell’s Jackson Hole Speech on Friday.
Speaking at the Fed’s annual event, Powell poured cold water on the idea of a Fed pivot, cautioning that rates would likely need to stay at elevated levels for longer in order to battle inflation, which is expected to persist at excessive levels. The speech marked a sharp change-in-tone from last year when Powell wrongly judged that the inflationary spike would prove temporary.
With market pricing swinging back in favour of a larger .75% hike in September, risk assets tumbled across the board on the back of the comments. However, since then we’ve seen some scaling back in USD upside, likely reflecting a short-term positioning adjustment ahead of Friday’s jobs data. For equities, the near-term outlook remains pegged to USD flows. If USD regains bullish momentum, equities are likely to move lower near term while a further pull-back in USD will allow for a fuller recovery in risk prices.
Technical Views
DAX
The failure at the latest test of the bearish trend line from YTD highs has seen the market reversing lower, breaking through key support at the 13067.45 level. With both MACD and RSI both bearish, the outlook remains skewed towards further losses while price holds below this level, putting 12462.59 on watch as the next key support.
S&P 500
The S&P has moved sharply lower following the test of the bear channel top. The reversal has seen price moving back inside the initial, corrective bull channel which formed during the initial recovery off YTD lows. While below the 4153.50 level, and with both MACD and RSI bearish, the focus is on a test of the bull channel low and 3910 support next. This is a key area and a break below here would be firmly bearish.
FTSE
The FTSE is continuing its shallow correction from the latest test of the bear channel top and 7558.7 level. While both MACD and RSI are bearish here, the move lower has been laboured, suggesting that while the market holds above the 7362.6 level, the focus remains on a further push higher. Below that level, the next support to watch is 7213.9.
NIKKEI
The breakout above the falling wedge pattern has stalled for now with price running into selling interest ahead of 29464.9 and reversing back under the 28356.6 level. With both MACD and RSI bearish, while below here the focus is on a test of the 27422.9 level next, ahead of a retest of the broken pattern top.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.