Equity markets – bullish signals on Wall Street

Sentiment is clearly up on the global markets with the Japanese Nikkei225 rising by more than 4% today despite reports on leaks (of radioactive substances) to the sea. However, a key message could have been delivered yesterday during the US trade when contracts for S&P500 climbed above 1292 pts. The level (low from February 24^th) is technically relevant since now the current move cannot be marked as a wave 4 of a downward structure (since wave 4 cannot overlap with wave 2 which started at 1292) and should be the first impulse wave of the new structure (which would mean that the correction was done on March 16^th completing the “abc” 3-waves pattern). A similar picture was observed on DJIA futures.

That fits a statistical description of corrections taking place during the bull market from 2003 to 2007. A recent slide (7,1%) is only moderately smaller than a median (8,4%) of six corrections from that period. Thus an increasing wave of optimism may just confirm another impulse (bullish) wave, especially as there are at least few more weeks before the Fed might signal some policy reversal.

EURUSD – approaching Nov’10 highs

Just like Portuguese tenders in January, the Spanish tender (of 10 and 30Y bonds) last week had a long lasting impact on the forex. Forward rate agreements (for EURIBOR) have risen sharply since last Thursday, a sign that market believes a successful auction removes some uncertainty at the ECB which now may feel free to raise interest rates in April. Even though a) market discounts 6 hikes in the span of 2 years (which is very very optimistic) and b) recent data from US were strongly dollar positive, the markets might be favoring the euro for as long as either a) the ECB doesn’t deliver (hiking rates but reducing expectations for more could trigger a sell-off of the euro) or b) Fed doesn’t change rhetoric (which is unlikely until the next meeting and not even certain by then).   

The EURUSD continues to rise along the trend and is approaching a resistance at 1,4280. Technically, this level is very important. Should it be breached, an increase from the second half of last year couldn’t be marked as the “abc” correction anymore, thus reducing downward risks. Furthermore, there is a downward trend line on the monthly interval not much above 1,4280 and breaking this one would open up some additional upward potential. Thus next few days might be decisive.   

Events to watch – CPI in UK

This week’s releases are crowded in a second half of the week, leaving merely the UK’s CPI (5.30 ET, 10.30 CET, consensus +4,2%) as the key release for today. This is important though. Recent advances on the EURUSD gave a green light for the GBPUSD to advance past local highs as well. Keeping in mind expectations of higher rates from BoE, higher CPI would fit the picture well. On top of this one, there is retail sales release in Canada today (8.30 ET, 13.30 CET, consensus +1% m/m).   

Przemysław Kwiecień PhD, Chief Economist

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more