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Risk Bounces Back As Dollar Fades
Global equities benchmarks have commenced the week in a broadly positive manner with most indices trading, as of the European morning on Tuesday. A combination of a weaker US Dollar and ongoing re-opening optimism appears to be helping keep risk assets supported, counteracting the rising inflation expectations which rattled markets last week.
A much stronger than expected US inflation reading for April put the question of Fed tapering firmly back on the table, sending yields higher and equities lower. However, a lower than expected April retail sales reading largely put an end to the move and has seen the US Dollar reversing lower subsequently, allowing equities to stabilises and recover.
More broadly, risk assets continue to derive support from the gradual reopening that is taking place in several key economies. The US continues to make firm headway with its reopening schedule while the UK has eased restriction yet again this week, heading towards a total removal of lockdown by June 21st. In Europe, focus is once again turning to the prospect of a summer tourism as vaccination numbers continue to grow. This theme is likely to continue in the near term, which should keep equities supported. However, last week’s data has shown just how sensitive the markets are to the issue of inflation meaning any further strong readings are likely to cause further downside volatility, warranting caution ahead.
Technical Views
DAX
The DAX is once again looking to break out above the 15486.96 level, following the rally off the 14791.27 support. MACD is roughly neutral here though the RSI indicator is showing bearish divergence, suggesting caution on the move. While the DAX holds above the 14791.27 level, however, the focus is on a continuation higher within the long term bull channel.
S&P 500
The rally in the S&P off the 4028.50 support has seen price breaking back into the rising wedge pattern. For now, however, the rally has been capped by the 4182.50 level. With the MACD still bearish, bulls will need to see a break above this level to regain upside momentum, targeting 4236.50 highs once again. 4116 is the first support to watch on the downside.
FTSE
The FTSE found support on a test of the 6895.6 support and rising trend line from March lows, turning price higher once again. However, price has yet to make it back above the 7137 level resistance, which stands as the key, upside marker for now. MACD and RSI reflect the lack of momentum in the market here. To the topside, 7241. Is the target for bulls.
NIKKEI
The breakdown below the rising trend line from 2020 lows saw the Nikkei find support into the base of the corrective bearish channel which has formed, framing the decline from this year’s highs. Buying kicked in ahead of the 26932.1 level through the rally is, as yet, capped by the 28356.6 level. With the MACD still bearish, there is room for further downside while this level holds.
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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.