Equities Rallying As USD Continues to Fall
Global equities benchmarks have seen a much stronger start to the week. Extending gains from the backend of last week, the current equities rally is in good health again this week, owing much to the weakness in the US Dollar. With the greenback having pulled away sharply from YTD highs, equities prices and broader risk assets alike have enjoyed fresh demand. The main driver behind the current moves appears to be the expectation that US inflation will have softened further last month.
In July, CPI was seen falling back on the prior month for the first time this year, raising some initial hopes that inflation might be peaking. Questions regarding a potential Fed-pivot soon followed. However, with the Fed maintaining a hawkish view and not giving the conversation any room, USD remained firmly bid, dragging equities prices lower. If we see a second consecutive month of moderating inflation, however, this will no doubt put much greater emphasis on the prospect of a peak in inflation, raising questions of a Fed pivot once again.
The Fed has been keen and clear to reiterate that it intends to keep tightening until inflation is back at its 2% target. With this in mind, the scope of any fall in inflation last month will be key. A large drop will put focus on the prospect of inflation falling at a quicker-than-forecast pace over coming months, which should be bearish for USD and bullish for equities.
Technical Views
DAX
For now, the 12462.59 level continues to underpin the market with price having turned higher once again off the level. The market is now testing the bearish trend line from YTD highs, with the 13672.31 level sitting just above. With momentum studies, bullish, if price can break this area 14170.79 will be the next objective for bulls.
S&P 500
The S&P has seen a strong rally off the 3910 level and bull channel lows with price now trading back up at the 4153.50 resistance level. With MACD turning bullish and RSI already bullish, the focus is on a continuation higher where the key challenge will be a test of the bearish trend line from YTD highs and the bull channel top, ahead of the 4305 level.
FTSE
The FTSE is rallying sharply this week off the recent 7213.9 lows. Price has broken back above 7362.6 level and is fast approaching the key 7558.7 level and bear channel top. This is a key resistance area for the FTSE and a break here will be firmly bullish, putting focus on 7691.6 next.
NIKKEI
The rally off the 27422.9 lows has seen the market breaking back above the 28356.6 level. The strength of this move suggests we might be starting next phase of the breakout above the falling wedge pattern following the initial move higher last month which stalled ahead of 29464.9
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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.