Equities Rally Despite USD Recovery
Global equities benchmarks have commenced the week with a broadly positive tone, with most indices trading in the over the last 24 hours. This week’s tentative buying follows the sales seen across most indices last week, particularly those in North America, which reacted negatively to the strong rally in the US dollar. The greenback saw form buying pressure across the week in response to a slew of better than expected data. With manufacturing, non-manufacturing and the August labour reports all confirming strength last month, sentiment towards the Dollar has started to shift back in favour of buying following months of heavy sales.
US data has continued to surprise to the upside recently, suggesting that the recovery there is continuing at an encouraging pace. However, with the Fed having recently announced a shift in inflation targeting, whereby it will now allow inflation to run hotter than 2% before lifting rates, US rate hike expectations continue to provide a drag on USD. Meanwhile, expectations that global central banks will likely need to ease again over coming months, in line with increased expectations of a second wave of the virus, are helping keep equities traders well supported here.
Over a mostly quiet data week this week the headline focus will be on the ECB meeting due on Thursday. While the bank is not expected to ease further here, traders will be keen to gauge any signals that further stimulus if forthcoming in the near term and will also be watching to see how the ECB addresses the recent strength in EURUSD which has drawn attention recently.
DAX (Bullish above 12916.11)
From a technical viewpoint. The DAX continues to hover round the 12916.11 level. The market has been drifting higher following the breakdown below the rising channel from 2020 lows, supported by the 50dma. While above here, the near-term bias remains bullish though bearish divergence in momentum studies poses risks.
S&P500 (Bullish above 3391.75)
From a technical viewpoint. The S&P has retraced from recent highs to retest the broken 3391.75 level, which is currently holding as support. With the bullish trend line providing support in the region also, the near-term bias remains bullish for now. However, should we see a break below the level, the next support to watch is down at the 3226.50 level.
FTSE (Bearish below 5922.4)
From a technical viewpoint. The FTSE continues to trade lower within the corrective bearish channel which has framed price action over recent months. Price recently broke down below the 5922.4 level though is currently attempting to recover above. Below here the 5626 level is the next key support to highlight.
NIKKEI (Bullish above 21758.9)
From a technical viewpoint. The NIKKEI continues to drift higher though remains fairly well contained around the 23273.6 level for now. While the 50dma continues to provide support, 21758.9 remains the line in the sand for bulls, keeping attention on a break of the 24069.4 level next.
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