5 Things To Watch Next Week

Bears Return to Wall Street?

VIX (US Volatility Index), 4-Hour Chart Analysis

We had a very interesting week in global financial markets, and not just because of the Fed’s monetary meeting and the continued Brexit chaos. Bond markets turned volatile towards the end of the week, together with equities, and US Treasury yields hit notable new lows due to the Fed’s sharp dovish shift.

The risk-off trade was triggered by the huge negative surprises in the Eurozone PMIs, but the news regarding another round of negotiations between China and the US also weighed on sentiment, as investors are now worried that a final agreement is not imminent.

The Volatility Index (VIX) shot higher on Friday, but it has already been showing negative divergence before the last session of the week, and now, the fear gauge is threatening to break out of its declining short-term trend. While the major US indices are now within striking distance of their all-time highs, the other key global benchmarks continue to look bearish from a long-term technical standpoint.

The coming week will be crucial in deciding the fate of the post-Christmas rally on Wall Street, and the level of the VIX will be one of the most important indicators, with all eyes on the 20 level.

Major Coins Still Stuck in No-Man’s Land

BTCUSD, 4-Hour Chart Analysis

The cryptocurrency segment wasn’t kind to traders in recent weeks, with failed moves in both directions trapping bulls and bears alike. Range trading has been the name of the game ever since the end of the encouraging counter-trend move in February, and although a few coins managed to score new recovery highs, the majority of the top digital currencies failed to resume the move, so far.

With the long-term downtrends in mind, the market remains risky for bulls, despite the already steep losses caused by the bear market. Following the counter-trend move, the deeply oversold long-term momentum readings are now cleared, and until we saw signs of sustained buying pressure in the segment, odds will favor the resumption of the bear market.

That said, a broader bottoming process might already be underway, but in that case, bulls will have plenty of time to enter after a new long-term uptrend is established. For now, our trend model is still overwhelmingly bearish and traders should only consider small long positions in the strongest coins.

No-Deal Brexit Option Back on the Table

GBP/USD, 4-Hour Chart Analysis

While today, hundreds of thousands of protesters marched for a new EU referendum in London, the Brexit is still likely to happen, even as the exact process remains a huge question. British Prime Minister Theresa May is still determined to push her plan through the Parliament, but after two failed votes, we don’t see a realistic chance of the plan to pass on a third attempt, which could take place on next Friday.

Although the EU members were open to a long Brexit delay, without an approved deal, a short delay was opposed by several states. So if the third vote fails, as expected, the UK will have until April 12 to decide to leave without a deal or to ask for a more substantial delay, which would require European elections to be held in May.

The much less likely outcome, an approved deal, would mean that the Brexit will happen on May 22. The renewed fears regarding a no-deal Brexit contributed to the late week volatility in risk assets, but according to the GBP/USD pair, traders are still cautiously optimistic about the outcome of the saga, as the Pound is not far off its recent highs.

Emerging Markets Weak Despite Chinese Rally

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

While the most important emerging market, China has been doing great in recent weeks, boosted by trade-related optimism, the segment only managed a relatively weak counter-trend rally compared to the US benchmarks. The continued weakness in the global economy, and the dollar’s stubbornness are all part of the problems for the segment, and the EEM ETF only scored marginal recovery highs despite the progressively improving investor sentiment and the broad-based risk-on shift.

On Friday, we saw pronounced weakness in emerging markets, on the heels of the terrible European data, the continued Brexit chaos, and the renewed trade woes, and some of the currencies that have been hit hard last summer, such as the Turkish Lira are under pressure again.

The good news for the segment is that financial conditions have eased considerably, thanks to the economic weakness and the central banks’ ultra-dovish reaction to that, and with that another panicky sell-off is unlikely, but we expect a grinding downtrend and new bear market lows in the coming months across emerging markets.

Another Busy Week of Economic Releases

We will have crucial economic reports coming out every day next week, and following last week’s PMI shockers, Europe will be at the center of attention. The German IFO Business Climate Indicator will highlight Monday’s session, US Housing Starts, Building Permits, and the CB Consumer Confidence Index is scheduled for Tuesday, while the rate decision of the RBNZ, a speech by ECB President Mario Draghi, and the Canadian Trade Balance could make waves on Wednesday.

The second half of the week will see the more impactful releases, with the German Consumer Price Index, the final reading of the US 4Q GDP growth coming out on Thursday and the British Current Account, the Canadian GDP, the US Core PCE Price Index, the Fed’s favorite Inflation measure due to be released on Friday.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.

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