US Dollar Sell Off Keeps Equities Supported
Global equities benchmarks have continued to trade at or near recent highs this week, supported by the persistent sell off in the US dollar. The greenback has seen renewed downside momentum this week following a brief consolidation last week amidst a spate of firm US data. However, with virus numbers in the US continuing to rise and with political uncertainty swelling ahead of the US elections, the global reserve currency has seen a steady weakening in demand. The market will now be looking to the FOMC minutes this week for further directional cues and, based on the Fed’s warning over the uncertainty in the outlook the near-term prospects for the Dollar appear weak. Tensions between the US and China have also resurfaced this week with Trump threatening to ban further Chinese companies following the recent ban on TikTok.
The main downside risk for equities markets continues to be the growing risk of a second wave of the virus. For now, investors are looking through these risks given the broad stance taken by global governments which asset that nationwide lockdowns will not be re-imposed. However, with virus numbers continuing to climb on a global scale and with wider travel restrictions being reintroduced, the downside risks to equities markets are building on the horizon.
Technical Views
DAX ( Bullish above 18861.85)
From a technical viewpoint. The DAX has been trading in a contained sideways fashion over recent sessions, hugging the 12916.11 level. While still above the 50dma the near term bias remains bullish. To the downside, any correction lower will target support at the 11861.85.
S&P500 (Bullish above 3226.50)
From a technical viewpoint. The S&P continues to put pressure on the 3391.75 level. Price has been grinding slowly higher over recent sessions, supported by the rising trend line from year to date lows and is now retesting the 2020 highs. To the downside, any correction lower will turn attention to the 3226.50 support.
FTSE (Bullish above 6543.4)
From a technical viewpoint. The FTSE continues to trade lower within the corrective bearish channel which has formed over recent weeks. While price remains supported at the 5922.4 level, the near-term bias remains bullish with the 6543.4 resistance the next upside level to watch.
NIKKEI (bearish below 23273.6)
From a technical viewpoint. The recent rally in the Nikkei saw price trading back up to test the 23273.6 resistance level. While this level holds. And with strong bearish divergence on momentum studies, the market is vulnerable to a reversal lower towards the 21758.9 support.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!